Item 2. Management’s Discussion and Analysis
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. Examples of forward-looking statements include statements we make regarding the impact of COVID-19, future attendance levels, the sufficiency of future cash flows, compliance with our debt covenants and our liquidity. 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. 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:
● The risks and uncertainties relating to the sufficiency of our existing cash and cash equivalents and available borrowing capacity to comply with minimum liquidity and financial requirements under our debt covenants related to borrowings pursuant to the Senior Secured Revolving Credit Facility and Odeon Term Loan Facility, fund operations, and satisfy obligations including cash outflows for deferred rent and planned capital expenditures currently and through the next twelve 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 from its current levels to 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. However, there remain significant risks that may negatively impact attendance levels, 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. If we are unable to achieve significantly increased levels of attendance and operating revenues, we may be required to obtain additional liquidity. If such additional liquidity were not realized or insufficient, we likely would seek an in-court or out-of-court restructuring of our liabilities, and in the event of such future liquidation or bankruptcy proceeding, holders of our common stock and other securities would likely suffer a total loss of their investment;
● the impact of the COVID-19 variant strains on us, the motion picture exhibition industry, and the economy in general, including our response to the COVID-19 variant strains related to suspension of operations at our theatres, personnel reductions and other cost-cutting measures and measures to maintain necessary liquidity and increases in expenses relating to precautionary measures at our facilities to protect the health and well-being of our customers and employees;
● risks and uncertainties relating to our significant indebtedness, including our borrowings and our ability to meet our financial maintenance and other covenants;
● shrinking exclusive theatrical release windows;
● certain covenants in the agreements that govern our indebtedness may limit our ability to take advantage of certain business opportunities and limit or restrict our ability to pay dividends;
● risks relating to impairment losses, including with respect to goodwill and other intangibles, and theatre and other closure charges;
● risks relating to motion picture production and performance;
● our lack of control over distributors of films;
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● intense competition in the geographic areas in which we operate;
● increased use of alternative film delivery methods including premium video on demand or other forms of entertainment;
● general and international economic, political, regulatory, social and financial market conditions, inflation, and other risks, including the effects of the exit of the United Kingdom from the European Union;
● limitations on the availability of capital or poor financial results may prevent us from deploying strategic initiatives;
● our ability to achieve expected synergies, benefits and performance from our strategic initiatives;
● our ability to refinance our indebtedness on terms favorable to us or at all;
● our ability to optimize our theatre circuit through new construction, the transformation of our existing theatres, and strategically closing underperforming theatres may be subject to delay and unanticipated costs;
● AMC Stubs ® A-List may not meet anticipated revenue projections, which could result in a negative impact upon operating results;
● failures, unavailability or security breaches of our information systems;
● our ability to utilize interest expense deductions may be limited annually due to Section 163(j) of the Tax Cuts and Jobs Act of 2017;
● our ability to recognize interest deduction carryforwards, net operating loss carryforwards and other tax attributes to reduce our future tax liability;
● our ability to recognize certain international deferred tax assets which currently do not have a valuation allowance recorded;
● impact of the elimination of the calculation of USD LIBOR rates on our contracts indexed to USD LIBOR:
● review by antitrust authorities in connection with acquisition opportunities;
● risks relating to the incurrence of legal liability, including costs associated with the ongoing securities class action lawsuits;
● dependence on key personnel for current and future performance and our ability to attract and retain senior executives and other key personnel, including in connection with any future acquisitions;
● increased costs in order to comply or resulting from a failure to comply with governmental regulation, including the General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act (“CCPA”) and pending future domestic privacy laws and regulations;
● supply chain disruptions may negatively impact our operating results;
● the dilution caused by recent and potential future sales of our Class A common stock could adversely affect the market price of the Class A common stock;
● the market price and trading volume of our shares of Class A common stock has been and may continue to be volatile, and purchasers of our securities could incur substantial losses;
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● future offerings of debt, which would be senior to our Class A common stock for purposes of distributions or upon liquidation, could adversely affect the market price of our Class a common stock;
● geopolitical events, including the threat of terrorism or cyber-attacks, or widespread health emergencies, such as the novel coronavirus or other pandemics or epidemics, causing people to avoid our theatres or other public places where large crowds are in attendance;
● anti-takeover protections in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage or prevent a takeover of our Company, even if an acquisition would be beneficial to our stockholders;
● an issuance of preferred stock could dilute the voting power of the common stockholders and adversely affect the market value of our Class A common stock; and
● other risks referenced from time to time in filings with the SEC.
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, 2020, 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
Throughout the first quarter of 2020, we temporarily suspended theatre operations in our U.S. markets and International markets in compliance with local, state, and federal governmental restrictions and recommendations on social gatherings to prevent the spread of COVID-19 and as a precaution to help ensure the health and safety of our guests and theatre staff. As of March 17, 2020, all of our U.S. and International theatre operations were temporarily suspended. We resumed limited operations in the International markets in early June 2020 and limited operations in the U.S. markets in late August 2020. A COVID-19 resurgence during the fourth quarter of 2020 resulted in additional local, state, and federal governmental restrictions and many previously reopened theatres in International markets temporarily suspended operations again.
As of March 31, 2021, we operated at 585 domestic theatres with limited seating capacities, representing approximately 99% of our domestic theatres. As of June 30, 2021, we operated 593 domestic theatres, representing approximately 100% of our domestic theatres with remaining seating capacity restrictions winding down throughout the quarter. As of September 30, 2021, we operated 596 domestic theatres representing essentially 100% of our domestic theatres. Total revenues for the U.S. markets increased $490.6 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and increased $325.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
As of March 31, 2021, we operated at 97 international theatres, with limited seating capacities, representing approximately 27% of our international theatres. As of June 30, 2021, we operated 335 international theatres with limited seating capacities, representing approximately 95% of our international theatres. The majority of international theatre operations were suspended for the first two months of the second quarter of 2021 due to a COVID-19 resurgence and did not reopen until early June 2021. At September 30, 2021, we operated 351 international theatres representing approximately 99% of our international theatres. Total revenues for the International markets increased $153.1 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and decreased $49.3 million for the nine months ended September 30, 2021 compared to the nine months ended
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September 30, 2020.
Consolidated revenues increased $643.7 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and increased $276.3 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
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 September 30, 2021, we owned, operated or had interests in 951 theatres and 10,604 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 suffers from COVID-19 impacts. As a result of the reduction in theatrical film releases, we have licensed and exhibited a larger number of previously released films that have lower film rental terms. 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 quarter of 2021. The following are recent developments regarding box office performance during that timeframe:
● Labor Day weekend 2021 set a new pre-pandemic admissions revenue record surpassing the previous admissions revenue record set during Labor Day weekend 2013. In addition to the admissions revenue record, the Labor Day weekend marks the first time since the beginning of COVID-19 that attendance during a weekend in 2021 exceeded the same weekend in 2019. Greatly contributing to this success, Shang-Chi and the Legend of the Ten Rings opened to reported industry admissions revenues of $94.7 million for its domestic opening weekend;
● Following the box office success of Shang-Chi and the Legend of the Ten Rings , Disney Media & Entertainment Distribution announced plans for exclusive theatrical release windows for the remainder of its 2021 theatrical movies;
● The reported $90 million domestic opening weekend industry admissions revenues for Venom: Let There Be Carnage makes it the second-biggest ever domestic opening of an October movie in cinema history;
● The 25 th James Bond movie, No Time to Die , set ticket sales records in the International markets; for example, Saturday one-day ticket admissions revenue in the United Kingdom was the highest for any Bond movie ever since the franchise was launched back in 1962; and
● October 2021 ticket admission revenues at both our domestic and international theatre locations were the highest of any month since the COVID-19 pandemic caused the temporary closure of theatres in March 2020.
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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
Number of
Number of
Number of
Screens As of
Screens As of
Screens As of
Screens As of
Format
September 30, 2021
September 30, 2020
September 30, 2021
September 30, 2020
IMAX®
186
188
38
35
Dolby Cinema TM
153
150
7
5
Other Premium Large Format ("PLF")
57
54
75
73
Dine-in theatres
729
713
13
8
Premium seating
3,394
3,305
552
505
Guest Amenities
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. 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. As a result of the impact of COVID-19 on our business, capital expenditures are currently predominantly focused on maintenance spending.
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 September 30, 2021, in our U.S. markets, we featured recliner seating in approximately 350 U.S. theatres, including Dine-in-Theatres, totaling approximately 3,394 screens and representing 43.5% of total U.S. screens. In our International markets, as of September 30, 2021, we had recliner seating in approximately 87 International theatres, totaling approximately 552 screens and representing 19.7% of total International screens.
Open-source internet ticketing makes our AMC seats (approximately 1.1 million as of September 30, 2021) 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 across all brands, 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
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the machine’s touch screen using the Coca-Cola Freestyle app.
Our MacGuffins Bar and Lounges (“MacGuffins”) give us an opportunity to engage our legal age customers. As of September 30, 2021, we offer alcohol in approximately 343 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 traditional paid tier called AMC Stubs Premiere™ for a $15 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 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 for $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 on-line 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. Starting in July of 2021, all A-List monthly subscriptions were automatically reactivated.
As of September 30, 2021, we had more than 24,300,000 member households enrolled in AMC Stubs® A-List, AMC Stubs Premiere™ and AMC Stubs Insider™ programs, combined. Our AMC Stubs® members represented approximately 43.3% of AMC U.S. markets attendance as of September 30, 2021. 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 11,900,000 members in our various International loyalty programs. We are currently evaluating the Odeon loyalty programs to determine how best to reward our European movie-goers and heighten guest loyalty to drive additional attendance to Odeon theatres.
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 continued to roll out our upgraded 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.
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Critical Accounting Policies and Estimates
Long-lived assets impairments. We evaluate indefinite-lived intangible assets for impairment annually or more frequently as specific events or circumstances dictate. We operate in a very competitive business environment and our revenues are highly dependent on movie content supplied by film producers. In addition, it is common for us to closely monitor certain locations where operating performance may not meet our expectations.
We review long-lived assets, including definite-lived intangible assets and theatre assets (including operating lease right-of-use assets) whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be fully recoverable. We identify impairments related to internal use software when management determines that the remaining carrying value of the software will not be realized through future use. We evaluate events or circumstances, including competition in the markets where we operate that would indicate the carrying value of theatre assets may not be fully recoverable. We evaluate theatres using historical and projected data of theatre level cash flow as our primary indicator of potential impairment and consider the seasonality of our business when making these evaluations. If an event or circumstance is identified indicating carrying value may not be recoverable, the sum of future undiscounted cash flows is compared to the carrying value. If carrying value exceeds the future undiscounted cash flows, the carrying value of the asset is reduced to fair value. Assets are evaluated for impairment on an individual theatre basis, which management believes is the lowest level for which there are identifiable cash flows. The fair value of assets is determined as either the expected selling price less selling costs (where appropriate) or the present value of the estimated future cash flows, adjusted as necessary for market participant factors.
We recorded impairment charges primarily related to long-lived assets and definite lived intangible assets of $34.5 million and $133.8 million during the three and nine months ended September 30, 2020, respectively. No impairment charges were recorded during the three and nine months ended September 30, 2021. There are a number of estimates and significant judgments that are made by management in performing these impairment evaluations. Such judgments and estimates include estimates of future attendance, revenues, rent relief, cost savings, cash flows, capital expenditures, and the cost of capital, among others. Attendance is expected to be significantly below historical levels for the first several months following reopening but is expected to increase as customers become more comfortable with the experience. We believe we have used reasonable and appropriate business judgments. There is considerable management judgment with respect to cash flow estimates and appropriate discount rates to be used in determining fair value, and, accordingly, actual results could vary significantly from such estimates, which fall under Level 3 within the fair value measurement hierarchy. These estimates determine whether impairments have been incurred, and quantify the amount of any related impairment charge. Given the nature of our business and our recent history, future impairments are possible and they may be material, based upon business conditions that are constantly changing and the competitive business environment in which we operate.
During the three months ended September 30, 2020, we recorded non-cash impairment of long-lived assets of $28.1 million on 49 theatres in the U.S. markets with 527 screens (in Alabama, California, Colorado, Florida, Illinois, Indiana, Iowa, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Wisconsin, and Wyoming) and $0 million in the International markets. During the nine months ended September 30, 2020, we recorded non-cash impairment charges of long-lived assets of $109.5 million on 75 theatres in the U.S. markets with 851 screens (in Alabama, Arkansas, California, Colorado, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming) and $9.9 million on 23 theatres in the International markets with 213 screens (in Germany, Italy, Spain, UK and Sweden). During the three and nine months ended September 30, 2020, we recorded impairment losses related to definite-lived intangible assets of $6.4 million and $14.4 million, respectively. In addition, during the three and nine months ended September 30, 2020, the Company recorded an impairment loss of $0 million and $7.2 million, respectively, within investment expense (income), related to equity interest investments without a readily determinable fair value accounted for under the cost method.
We first assessed the qualitative factors to determine whether the existence of events and circumstances indicated that it was more likely than not the fair value amounts of any indefinite-lived intangible assets were less than their carrying amounts and concluded it was not more likely than not that the fair value amounts were less than their carrying amounts. At September 30, 2020 and March 31, 2020, we performed a quantitative impairment evaluation of its indefinite-lived intangible assets related to the AMC, Odeon and Nordic trade names. We recorded impairment charges of $4.5 million and $0.1 million related to the Odeon and Nordic trade names, respectively, during the three months ended September 30, 2020. During the nine months ended September 30, 2020, we recorded impairment
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charges of $10.4 million and $2.5 million related to the Odeon and Nordic trade names, respectively. No impairment charges were recorded related to the AMC trade name for the three and nine months ended September 30, 2020. To estimate fair value of our indefinite-lived trade names, we employed a derivation of the Income Approach known as the Royalty Savings Method. The Royalty Savings Method values an intangible asset by estimating the royalties saved through ownership of the asset. We applied royalty rates of 0.5% for AMC and Odeon trade names and 1.0% for Nordic to the related theatre revenues on an after-tax basis using effective tax rates. Related cash flows were discounted at 12.5% for AMC and 14.0% for Odeon and Nordic. There was no impairment charge of indefinite-lived intangible assets during the three and nine months ended September 30, 2021.
Goodwill. We evaluate the goodwill recorded at our two reporting units (Domestic Theatres and International Theatres) for impairment annually as of the beginning of the fourth fiscal quarter or more frequently as specific events or circumstances dictate. In accordance with ASC 350-20-35-30, we performed an assessment to determine whether there were any events or changes in circumstances that would warrant an interim ASC 350 impairment analysis as of March 31, 2021. Based on increases in our enterprise market capitalization from December 31, 2020 to March 31, 2021, from December 31, 2020 to June 30, 2021, and from December 31, 2020 to September 30, 2021 we performed a qualitative impairment test to evaluate whether it is more likely than not that the fair value of our two reporting units is less than their respective carrying amounts as of March 31, 2021, June 30, 2021, and September 30, 2021, respectively. We concluded that it is not more likely than not that the fair value of our two reporting units have been reduced below their respective carrying amounts. As a result, we concluded that interim quantitative impairment tests as of March 31, 2021, June 30, 2021, and September 30, 2021 were not required.
The Step 1 quantitative goodwill impairment test was performed at March 31, 2020 and September 30, 2020 due to a decline in the common stock price and prices of the Company’s corporate borrowings and the resulting impact on market capitalization, which were two of several factors considered when making this evaluation, including the sustained declines during 2020 in our enterprise market capitalization and the temporary suspension of operations at all of our theatres on or before March 17, 2020 due to the COVID-19 pandemic. At March 31, 2020, the enterprise fair values of the Domestic Theatres and International Theatres reporting units were less than their carrying values and goodwill impairment charges of $1,124.9 million and $619.4 million, respectively, were recorded as of March 31, 2020 for our Domestic Theatres and International Theatres reporting units. At September 30, 2020, the enterprise fair values of the Domestic Theatres and International Theatres reporting units were less than their carrying values and goodwill impairment charges of $151.2 million and $5.6 million, respectively, were recorded as of September 30, 2020 for our Domestic Theatres and International Theatres reporting units.
Significant Events
Class A common stock issuance. In December of 2020 and the first half of 2021, we entered into equity distribution agreements with sales agents to sell up to 241.6 million shares of our Class A common stock, par value $0.01 per share, through “at-the-market” offering programs. During the nine months ended September 30, 2021, we raised gross proceeds of approximately $1,611.8 million related to the “at-the-market” offering programs and paid fees to the sales agents of approximately $40.3 million and other fees of $0.8 million. We intend to use the net proceeds from the sale of the Class A common stock pursuant to the equity distribution agreement for general corporate purposes, which may include the repayment, refinancing, redemption or repurchase of existing indebtedness or working capital, capital expenditures and other investments. The gross proceeds raised from the “at-the-market” sale of Class A common stock during the nine months ended September 30, 2021 are summarized in the table below:
"At-the-market" Equity Distribution Agreement Dates
Sales Agents
Number of Class A common stock shares sold (in millions)
Gross Proceeds (in millions)
December 11, 2020
Goldman Sachs & Co. LLC and B. Riley Securities, Inc. (1)
137.07
$
352.6
January 25, 2021
Goldman Sachs & Co. LLC and B. Riley Securities, Inc.
50.0
244.3
April 27, 2021
Goldman Sachs & Co. LLC, B. Riley Securities, Inc. and Citigroup Global Markets Inc.
43.0
427.5
June 3, 2021
B. Riley Securities, Inc. and Citigroup Global Markets Inc.
11.55
587.4
Total
241.62
$
1,611.8
(1) On December 11, 2020, we entered into an equity distribution agreement with Goldman Sachs & Co. LLC and B. Riley Securities, Inc., as sales agents to sell up to 178.0 million shares of our Class A common stock, of which approximately 40.93 million shares of our Class A common stock were sold and settled during December 2020 and approximately 137.07 million shares of our Class A common stock were sold and settled during the nine months ended September 30, 2021.
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Class A common stock issuance to Mudrick. On June 1, 2021, we issued to Mudrick 8.5 million shares of our Class A common stock and raised gross proceeds of $230.5 million and paid fees of approximately $0.1 million related to this transaction. We issued the shares in reliance on an exemption from registration provided by section 4(a)(2) of the Securities Act of 1933. We intend to use the proceeds from the share sale primarily for the pursuit of value creating acquisitions of theatre assets and leases, as well as investments to enhance the consumer appeal of our theatres. In addition, with these funds, we intend to continue exploring deleveraging opportunities.
Baltics’ theatre sale. On August 28, 2020, we entered into an agreement to sell our equity interest in Forum Cinemas OU, which consisted of nine theatres located in the Baltics’ region (Latvia, Lithuania and Estonia) and was included in our International markets reportable segment. The completion of the sale took place in several steps and was contingent upon clearance from each regulatory competition council in each country. In October 2020, we completed the divestiture of our equity interest in Latvia. In February 2021, we received cash consideration for the remaining equity interest in Estonia of $3.8 million (€3.2 million), net of cash of $0.3 million. In May 2021, we received cash consideration of $31.4 million (€26.2 million), net of cash of $0.1 million and transaction costs of $0.3 million, which completed the sale of our remaining 51% equity interest in Lithuania and eliminated our noncontrolling interest in Forum Cinemas OU. Accrued transaction costs of $1.0 million were paid during the three months ended September 30, 2021. We recorded the net gain from the sale of our equity interest in Forum Cinemas OU of $0 million and $5.5 million (net of transaction costs of $2.6 million) in investment expense (income), during the three and nine months ended September 30, 2021, respectively.
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Operating Results
The following table sets forth our consolidated revenues, operating costs and expenses.
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
(In millions)
2021
2020
% Change
2021
2020
% Change
Revenues
Admissions
$
425.1
$
62.9
*
%
$
727.6
$
631.8
15.2
%
Food and beverage
265.2
29.1
*
%
476.8
317.6
50.1
%
Other theatre
72.9
27.5
*
%
151.8
130.5
16.3
%
Total revenues
763.2
119.5
*
%
1,356.2
1,079.9
25.6
%
Operating Costs and Expenses
Film exhibition costs
176.5
26.6
*
%
297.4
298.5
(0.4)
%
Food and beverage costs
42.9
8.8
*
%
78.9
66.7
18.3
%
Operating expense, excluding depreciation and amortization below
321.5
192.1
67.4
%
747.4
663.8
12.6
%
Rent
214.9
214.3
0.3
%
612.5
676.2
(9.4)
%
General and administrative:
Merger, acquisition and other costs
1.4
1.0
40.0
%
12.4
3.0
*
%
Other, excluding depreciation and amortization below
47.5
32.7
45.3
%
153.7
91.3
68.3
%
Depreciation and amortization
103.7
123.5
(16.0)
%
323.5
365.7
(11.5)
%
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill
—
195.9
*
%
—
2,047.8
*
%
Operating costs and expenses
908.4
794.9
14.3
%
2,225.8
4,213.0
(47.2)
%
Operating loss
(145.2)
(675.4)
(78.5)
%
(869.6)
(3,133.1)
(72.2)
%
Other expense (income):
Other expense (income)
(11.7)
125.0
*
%
(71.8)
145.3
*
%
Interest expense:
Corporate borrowings
88.7
82.8
7.1
%
328.3
233.7
40.5
%
Finance lease obligations
1.2
1.4
(14.3)
%
4.0
4.5
(11.1)
%
Non-cash NCM exhibitor service agreement
9.4
10.1
(6.9)
%
28.7
30.1
(4.7)
%
Equity in (earnings) loss of non-consolidated entities
(6.7)
10.6
*
%
(1.2)
25.9
*
%
Investment expense (income)
—
(4.1)
*
%
(8.3)
4.0
*
%
Total other expense, net
80.9
225.8
(64.2)
%
279.7
443.5
(36.9)
%
Net loss before income taxes
(226.1)
(901.2)
(74.9)
%
(1,149.3)
(3,576.6)
(67.9)
%
Income tax provision (benefit)
(1.9)
4.6
*
%
(13.9)
66.7
*
%
Net loss
(224.2)
(905.8)
(75.2)
%
(1,135.4)
(3,643.3)
(68.8)
%
Less: Net loss attributable to noncontrolling interests
—
—
*
%
(0.7)
—
*
%
Net loss attributable to AMC Entertainment Holdings, Inc.
$
(224.2)
$
(905.8)
(75.2)
%
$
(1,134.7)
$
(3,643.3)
(68.9)
%
* Percentage change in excess of 100%
45
Table of Contents
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
Operating Data:
2021
2020
2021
2020
Screen additions
2
21
53
34
Screen acquisitions
78
14
140
14
Screen dispositions
37
185
139
399
Construction openings (closures), net
9
14
7
7
Average screens (1)
10,151
4,022
8,601
4,318
Number of screens operated
10,575
8,776
10,575
8,776
Number of theatres operated
947
788
947
788
Total number of circuit screens
10,604
10,697
10,604
10,697
Total number of circuit theatres
951
958
951
958
Screens per theatre
11.2
11.2
11.2
11.2
Attendance (in thousands) (1)
39,999
6,503
68,864
67,098
(1) Includes consolidated theatres only and excludes screens offline due to construction and temporary suspension of operations as consequence of the COVID-19 pandemic.
46
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Segment Operating Results
The following table sets forth our revenues, operating costs and expenses by reportable segment.
U.S. Markets
International Markets
Consolidated
Three Months Ended
Three Months Ended
Three Months Ended
September 30,
September 30,
September 30,
(In millions)
2021
2020
2021
2020
2021
2020
Revenues
Admissions
$
293.2
$
18.4
$
131.9
$
44.5
$
425.1
$
62.9
Food and beverage
197.8
10.5
67.4
18.6
265.2
29.1
Other theatre
46.9
18.4
26.0
9.1
72.9
27.5
Total revenues
537.9
47.3
225.3
72.2
763.2
119.5
Operating Costs and Expenses
Film exhibition costs
126.7
9.5
49.8
17.1
176.5
26.6
Food and beverage costs
28.4
4.4
14.5
4.4
42.9
8.8
Operating expense
231.1
122.6
90.4
69.5
321.5
192.1
Rent
160.8
157.2
54.1
57.1
214.9
214.3
General and administrative expense:
Merger, acquisition and other costs
1.3
0.7
0.1
0.3
1.4
1.0
Other, excluding depreciation and amortization below
29.7
19.2
17.8
13.5
47.5
32.7
Depreciation and amortization
78.4
91.6
25.3
31.9
103.7
123.5
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill
—
185.6
—
10.3
—
195.9
Operating costs and expenses
656.4
590.8
252.0
204.1
908.4
794.9
Operating loss
(118.5)
(543.5)
(26.7)
(131.9)
(145.2)
(675.4)
Other expense (income):
Other expense (income)
13.6
132.2
(25.3)
(7.2)
(11.7)
125.0
Interest expense:
Corporate borrowings
68.9
81.5
19.8
1.3
88.7
82.8
Finance lease obligations
0.2
0.3
1.0
1.1
1.2
1.4
Non-cash NCM exhibitor service agreement
9.4
10.1
—
—
9.4
10.1
Equity in (earnings) loss of non-consolidated entities
(6.1)
8.4
(0.6)
2.2
(6.7)
10.6
Investment income
—
(4.1)
—
—
—
(4.1)
Total other expense (income), net
86.0
228.4
(5.1)
(2.6)
80.9
225.8
Net loss before income taxes
(204.5)
(771.9)
(21.6)
(129.3)
(226.1)
(901.2)
Income tax provision (benefit)
(2.3)
6.2
0.4
(1.6)
(1.9)
4.6
Net loss
(202.2)
(778.1)
(22.0)
(127.7)
(224.2)
(905.8)
Less: net loss attributable to noncontrolling interests
—
—
—
—
—
—
Net loss attributable to AMC Entertainment Holdings, Inc.
$
(202.2)
$
(778.1)
$
(22.0)
$
(127.7)
$
(224.2)
$
(905.8)
U.S. Markets
International Markets
Consolidated
Three Months Ended
Three Months Ended
Three Months Ended
September 30,
September 30,
September 30,
2021
2020
2021
2020
2021
2020
Segment Operating Data:
Screen additions
—
—
2
21
2
21
Screen acquisitions
72
14
6
—
78
14
Screen dispositions
20
167
17
18
37
185
Construction openings (closures), net
8
12
1
2
9
14
Average screens (1)
7,668
2,237
2,483
1,785
10,151
4,022
Number of screens operated
7,784
6,103
2,791
2,673
10,575
8,776
Number of theatres operated
596
467
351
321
947
788
Total number of circuit screens
7,796
7,826
2,808
2,871
10,604
10,697
Total number of circuit theatres
597
600
354
358
951
958
Screens per theatre
13.1
13.0
7.9
8.0
11.2
11.2
Attendance (in thousands) (1)
26,698
1,964
13,301
4,539
39,999
6,503
(1) Includes consolidated theatres only and excludes screens offline due to construction and temporary suspension of operations as consequence of the COVID-19 pandemic.
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Table of Contents
U.S. Markets
International Markets
Consolidated
Nine Months Ended
Nine Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
(In millions)
2021
2020
2021
2020
2021
2020
Revenues
Admissions
$
552.2
$
407.5
$
175.4
$
224.3
$
727.6
$
631.8
Food and beverage
386.2
227.1
90.6
90.5
476.8
317.6
Other theatre
111.5
89.7
40.3
40.8
151.8
130.5
Total revenues
1,049.9
724.3
306.3
355.6
1,356.2
1,079.9
Operating Costs and Expenses
Film exhibition costs
231.1
208.2
66.3
90.3
297.4
298.5
Food and beverage costs
57.2
42.6
21.7
24.1
78.9
66.7
Operating expense
560.2
453.9
187.2
209.9
747.4
663.8
Rent
452.3
496.4
160.2
179.8
612.5
676.2
General and administrative expense:
Merger, acquisition and other costs
8.5
2.7
3.9
0.3
12.4
3.0
Other
105.7
50.3
48.0
41.0
153.7
91.3
Depreciation and amortization
243.6
275.0
79.9
90.7
323.5
365.7
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill
—
1,399.9
—
647.9
—
2,047.8
Operating costs and expenses
1,658.6
2,929.0
567.2
1,284.0
2,225.8
4,213.0
Operating loss
(608.7)
(2,204.7)
(260.9)
(928.4)
(869.6)
(3,133.1)
Other expense (income):
Other expense (income)
10.2
157.8
(82.0)
(12.5)
(71.8)
145.3
Interest expense:
Corporate borrowings
281.6
230.2
46.7
3.5
328.3
233.7
Finance lease obligations
0.6
1.0
3.4
3.5
4.0
4.5
Non-cash NCM exhibitor service agreement
28.7
30.1
—
—
28.7
30.1
Equity in (earnings) loss of non-consolidated entities (1)
(4.9)
21.7
3.7
4.2
(1.2)
25.9
Investment expense (income)
(2.8)
4.1
(5.5)
(0.1)
(8.3)
4.0
Total other expense (income), net
313.4
444.9
(33.7)
(1.4)
279.7
443.5
Net loss before income taxes
(922.1)
(2,649.6)
(227.2)
(927.0)
(1,149.3)
(3,576.6)
Income tax provision (benefit)
(10.2)
7.7
(3.7)
59.0
(13.9)
66.7
Net loss
(911.9)
(2,657.3)
(223.5)
(986.0)
(1,135.4)
(3,643.3)
Less: net loss attributable to noncontrolling interests
—
—
(0.7)
—
(0.7)
—
Net loss attributable to AMC Entertainment Holdings, Inc.
$
(911.9)
$
(2,657.3)
$
(222.8)
$
(986.0)
$
(1,134.7)
$
(3,643.3)
U.S. Markets
International Markets
Consolidated
Nine Months Ended
Nine Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
2021
2020
2021
2020
2021
2020
Segment Operating Data:
Screen additions
31
11
22
23
53
34
Screen acquisitions
134
14
6
—
140
14
Screen dispositions
43
305
96
94
139
399
Construction openings (closures), net
6
12
1
(5)
7
7
Average screens (1)
7,222
2,965
1,379
1,353
8,601
4,318
Number of screens operated
7,784
6,103
2,791
2,673
10,575
8,776
Number of theatres operated
596
467
351
321
947
788
Total number of circuit screens
7,796
7,826
2,808
2,871
10,604
10,697
Total number of circuit theatres
597
600
354
358
951
958
Screens per theatre
13.1
13.0
7.9
8.0
11.2
11.2
Attendance (in thousands) (1)
50,738
41,633
18,126
25,465
68,864
67,098
(1) Includes consolidated theatres only and excludes screens offline due to construction and temporary suspension of operations as consequence of the COVID-19 pandemic.
48
Table of Contents
Adjusted EBITDA
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 September 30, 2021, Adjusted EBITDA in the U.S. markets was $(30.1) million compared to $(259.1) million during the three months ended September 30, 2020. The year-over-year improvement was primarily due to the decreased net loss driven by an increase in attendance as a result of the reopening of theatres that had been temporarily closed due to the COVID-19 pandemic, the release of new films, lifting of seating restrictions, and the increase in cash distributions from equity method investees, partially offset by increases in operating expenses due to the increase in attendance, increases in rent expense, and increases in general and administrative expense. During the three months ended September 30, 2021, Adjusted EBITDA in the International markets was $24.7 million compared to $(75.4) million during the three months ended September 30, 2020. The year-over-year improvement was primarily due to the decreased net loss driven by an increase in attendance as a result of the reopening of theatres that had been temporarily closed due to the COVID-19 pandemic, the release of new films, increases in governmental assistance for COVID-19, increases in cash distributions and attributable EBITDA from equity method investees, and decreases in rent, partially offset by increases in operating expenses due to the increase in attendance and increases in general and administrative expense. During the three months ended September 30, 2021, Adjusted EBITDA in the U.S. markets and International markets was $(5.4) million compared to $(334.5) million during the three months ended September 30, 2020, driven by the aforementioned factors impacting Adjusted EBITDA.
During the nine months ended September 30, 2021, Adjusted EBITDA in the U.S. markets was $(348.5) million compared to $(504.5) million during the nine months ended September 30, 2020. The year-over-year improvement was primarily due to the decreased net loss driven by an increase in attendance as a result of the reopening of theatres that had been temporarily closed due to the COVID-19 pandemic, lifting of seating restrictions, increases in governmental assistance for COVID-19, and decreases in rent expense, partially offset by increases in operating expenses due to the increase in attendance, increases in general and administrative expense, and decreases in cash distributions from equity method investees. During the nine months ended September 30, 2021, Adjusted EBITDA in the International markets was $(102.4) million compared to $(167.2) million during the nine months ended September 30, 2020. The year-over-year improvement was primarily due to increases in governmental assistance for COVID-19, decreases in operating expenses due to the decrease in attendance largely attributable to the limited or temporary suspension of operations as a consequence of the COVID-19 pandemic and decreases in rent, partially offset by the decrease in revenues due to the decrease in attendance and increases in general and administrative expense. During the nine months ended September 30, 2021, Adjusted EBITDA in the U.S. markets and International markets was $(450.9) million compared to $(671.7) million during the nine months ended September 30, 2020, 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:
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
Adjusted EBITDA (In millions)
2021
2020
2021
2020
U.S. markets
$
(30.1)
$
(259.1)
$
(348.5)
$
(504.5)
International markets
24.7
(75.4)
(102.4)
(167.2)
Total Adjusted EBITDA
$
(5.4)
$
(334.5)
$
(450.9)
$
(671.7)
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Table of Contents
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
(In millions)
2021
2020
2021
2020
Net loss
$
(224.2)
$
(905.8)
$
(1,135.4)
$
(3,643.3)
Plus:
Income tax provision (benefit)
(1.9)
4.6
(13.9)
66.7
Interest expense
99.3
94.3
361.0
268.3
Depreciation and amortization
103.7
123.5
323.5
365.7
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill (1)
—
195.9
—
2,047.8
Certain operating expense (income) (2)
(0.3)
1.8
(2.0)
2.4
Equity in (earnings) loss of non-consolidated entities
(6.7)
10.6
(1.2)
25.9
Cash distributions from non-consolidated entities (3)
6.1
3.7
6.4
17.4
Attributable EBITDA (4)
1.5
(1.4)
1.4
(0.9)
Investment expense (income)
—
(4.1)
(8.3)
4.0
Other expense (5)
13.7
138.5
8.6
163.5
Other non-cash rent benefit (6)
(3.0)
(0.2)
(22.2)
(1.7)
General and administrative — unallocated:
Merger, acquisition and other costs (7)
1.4
1.0
12.4
3.0
Stock-based compensation expense (8)
5.0
3.1
18.8
9.5
Adjusted EBITDA
$
(5.4)
$
(334.5)
$
(450.9)
$
(671.7)
(1) During the three months ended September 30, 2020, we recorded goodwill non-cash impairment charges of $151.2 million and $5.6 million related to the enterprise fair value of the Domestic Theatres and International Theatres reporting units, respectively. We recorded non-cash impairment charges related to our long-lived assets of $28.1 million on 49 theatres in the U.S. markets with 527 screens which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $0 million in the International markets during the three months ended September 30, 2020. We recorded non-cash impairment charges related to definite-lived intangible assets of $6.4 million in the Domestic Theatres reporting unit and indefinite-lived intangible assets of $4.5 million and $0.1 million related to the Odeon and Nordic trade names, respectively, in the International Theatres reporting unit during the three months ended September 30, 2020.
During the nine months ended September 30, 2020, we recorded goodwill non-cash impairment charges of $1,276.1 million and $625.0 million related to the enterprise fair values of the Domestic Theatres and International Theatres reporting units, respectively. During the nine months ended September 30, 2020, we recorded non-cash impairment charges related to our long-lived assets of $109.5 million on 75 theatres in the U.S. markets with 851 screens, which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $9.9 million on 23 theatres in the International markets with 213 screens, which were related to property, net and operating lease right-of-use assets, net. We recorded non-cash impairment charges related to indefinite-lived intangible assets of $10.4 million and $2.5 million related to the Odeon and Nordic trade names, respectively, in the International Theatres reporting unit during the nine months ended September 30, 2020. We also recorded non-cash impairment charges of $14.4 million related to our definite-lived intangible assets in the Domestic Theatres reporting unit during the nine months ended September 30, 2020.
(2) Amounts represent preopening expense related to temporarily closed screens under renovation, theatre and other closure expense for the permanent closure of screens including the related accretion of interest, non-cash deferred digital equipment rent expense, and disposition of assets and other non-operating gains or losses included in operating expenses. We have excluded these items as they are non-cash in nature or are non-operating in nature.
(3) Includes U.S. non-theatre distributions from equity method investments and International non- theatre distributions from equity method investments to the extent received. We believe including cash distributions is an appropriate reflection of the contribution of these investments to our operations.
(4) Attributable EBITDA includes the EBITDA from equity investments in theatre operators in certain
50
Table of Contents
International markets. See below for a reconciliation of our equity in (earnings) loss of non-consolidated entities to attributable EBITDA. Because these equity investments are in theatre operators in regions where we hold a significant market share, we believe attributable EBITDA is more indicative of the performance of these equity investments and management uses this measure to monitor and evaluate these equity investments. We also provide services to these theatre operators including information technology systems, certain on-screen advertising services and our gift card and package ticket program.
Three Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
September 30,
(In millions)
2021
2020
2021
2020
Equity in (earnings) loss of non-consolidated entities
$
(6.7)
$
10.6
$
(1.2)
$
25.9
Less:
Equity in (earnings) loss of non-consolidated entities excluding International theatre joint ventures
(6.4)
8.7
(4.9)
23.0
Equity in earnings (loss) of International theatre joint ventures
0.3
(1.9)
(3.7)
(2.9)
Income tax provision (benefit)
0.2
—
0.1
(0.1)
Investment income
—
(0.4)
—
(0.6)
Interest expense
—
0.1
0.2
0.1
Depreciation and amortization
1.0
0.7
4.6
2.2
Other expense
—
0.1
0.2
0.4
Attributable EBITDA
$
1.5
$
(1.4)
$
1.4
$
(0.9)
(5) Other expense during the three months ended September 30, 2021, included loss on debt extinguishment of $14.4 million, partially offset by foreign currency transaction gains of $(0.7) million. Other expense during the three months ended September 30, 2020, primarily related to a loss of $89.9 million for the fair value adjustment of the derivative liability related to the Convertible Notes due 2026, financing fees of $36.3 million related to debt modification, credit losses related to contingent lease guarantees of $6.1 million, a loss of $5.9 million for the fair value adjustment of the derivative asset related to the contingent call option related to the Class B common stock purchase and cancellation agreement, and foreign currency transaction losses of approximately $0.1 million.
During the nine months ended September 30, 2021, other expense primarily consisted of a loss on debt extinguishment of $14.4 million and financing fees of $1.0 million, partially offset by income related to contingent lease guarantees of $(5.7) million and foreign currency transaction gains of $(1.1) million. During the nine months ended September 30, 2020, other expense primarily related to a loss of $89.4 million for the fair value adjustment of the derivative liability related to the Convertible Notes due 2026, financing fees of $39.1 million related to debt modification, a loss of $19.6 million for the fair value adjustment of the derivative asset related to the contingent call option related to the Class B common stock purchase and cancellation agreement, and credit losses related to contingent lease guarantees of $15.3 million.
(6) Reflects amortization expense for certain intangible assets reclassified from depreciation and amortization to rent expense due to the adoption of ASC 842, Leases and deferred rent benefit related to the impairment of right-of-use operating lease assets.
(7) Merger, acquisition and other costs are excluded as they are non-operating in nature.
(8) Non-cash expense included in general and administrative: other.
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:
● does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments;
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● does not reflect changes in, or cash requirements for, our working capital needs;
● does not reflect the significant interest expenses, or the cash requirements necessary to service interest or principal payments on our debt;
● excludes income tax payments that represent a reduction in cash available to us; and
● does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future.
Segment Information
Our historical results of operations for the three and nine months ended September 30, 2021 and September 30, 2020 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 September 30, 2021 Compared to the Three Months Ended September 30, 2020
Condensed Consolidated Results of Operations
Revenues. Total revenues increased $643.7 million from $119.5 million to $763.2 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Admissions revenues increased $362.2 million from $62.9 million to $425.1 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to an increase in attendance from 6.5 million patrons to 40.0 million patrons and a 9.9% increase in average ticket price. The increase in attendance was primarily due to the fact that operations at our theatres in U.S. markets and International markets were temporarily suspended during most of the third quarter of 2020 as a result of the COVID-19 pandemic which also resulted in fewer new films released in the prior year. As discussed above, by the start of the second quarter of 2021, we had resumed operations at nearly all of our domestic theatres and at certain of our International theatres, and during the second quarter of 2021, seating capacity restrictions continued to be lifted at U.S. theatre locations and we continued to resume operations at International theatre locations. The increase in average ticket price was primarily due to strategic pricing initiatives put in place over the prior year, lower frequency on our A-List subscription program and on our AMC Stubs program, partially offset by loyalty program discounts and a decrease in foreign currency translation rates.
Food and beverage revenues increased $236.1 million from $29.1 million to $265.2 million, during the three months ended September 30, 2021, compared to the three months ended September 30, 2020, primarily due to the increase in attendance and increase in food and beverage per patron. Food and beverage per patron increased 48.3% from $4.47 to $6.63 due to several contributing factors, including increases in units sold per transaction, an increase in dine-in percentages and mobile orders along with price increases, partially offset by a decrease in foreign currency translation rates.
Total other theatre revenues increased $45.4 million from $27.5 million to $72.9 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, 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 decreases in foreign currency translation rates.
Operating costs and expenses. Operating costs and expenses increased $113.5 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the increase in attendance and an increase in average screens operated, partially offset by a decrease in impairment charges of $195.9 million and decrease in foreign currency translation rates. Film exhibition costs increased $149.9 million from $26.6 million to $176.5 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the increase in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 41.5% for the three months ended September 30, 2021 and 42.3% during the three months ended September 30, 2020.
Food and beverage costs increased $34.1 million from $8.8 million to $42.9 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. 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,
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food and beverage costs were 16.2% for the three months ended September 30, 2021 and 30.2% during the three months ended September 30, 2020. Food and beverage costs included $3.2 million of charges for obsolete inventory during the three months ended September 30, 2020, due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 42.1% during the three months ended September 30, 2021and not meaningful during the three months ended September 30, 2020 due to the low levels of attendance in the prior year. Rent expense increased 0.3%, or $0.6 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. 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 $375.9 million that have been deferred to the fourth quarter of 2021 and future years as of September 30, 2021.
Merger, acquisition and other costs. Merger, acquisition and other costs were $1.4 million during the three months ended September 30, 2021 compared to $1.0 million during the three months ended September 30, 2020, primarily due to increases in legal and professional costs related to strategic contingent planning.
Other. Other general and administrative expense increased 45.3% or $14.8 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to increases in bonus expense and stock-based compensation expense due to improvements in expected annual performance compared to annual targets and the modification and acceleration of vesting of awards during the current and prior year and increases in salaries and insurance costs. 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 16.0% or $19.8 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to lower depreciation expense on theatres impaired in calendar 2019 and 2020 and the decrease in foreign currency translation rates.
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill. During the three months ended September 30, 2020, we recognized non-cash impairment losses of $28.1 million on 49 theatres in the U.S. markets with 527 screens (in Alabama, California, Colorado, Florida, Illinois, Indiana, Iowa, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Wisconsin, and Wyoming) which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $0 in the International markets.
We performed a quantitative impairment evaluation of our indefinite-lived intangible assets as of September 30, 2020 related to the AMC, Odeon and Nordic tradenames and recorded impairment charges of $4.5 million and $0.1 million related to Odeon and Nordic tradenames, respectively, during the three months ended September 30, 2020. In addition, we performed a quantitative impairment evaluation of our definite-lived intangible assets as of September 30, 2020, and recorded impairment charge of $6.4 million.
We performed a quantitative impairment evaluation of our goodwill as of September 30, 2020 and recorded impairment charges of $151.2 million and $5.6 million during the three months ended September 30, 2020 for our Domestic Theatres and International Theatres reporting units, respectively.
Other expense (income). Other income of $11.7 million during the three months ended September 30, 2021 was primarily due to $25.1 million in government assistance related to COVID-19 offset by a loss on extinguishment of $14.4 million related to the redemption of $35.0 million principal amount of 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026. Other expense of $125.0 million during the three months ended September 30, 2020 was primarily due to third party expenses of $36.3 million related to the restructuring of our debt, the increase in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2026 of $89.9 million, the decrease in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $5.9 million, and estimated credit losses related to contingent lease guarantees of $6.1 million, partially offset by international government assistance related to COVID-19 of $13.5 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.
Interest expense. Interest expense increased $5.0 million to $99.3 million for the three months ended
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September 30, 2021 compared to $94.3 million during the three months ended September 30, 2020 primarily due to:
● the issuance of $300 million of 10.5% First Lien Notes due 2026 on July 31, 2020;
● the issuance of $100 million of 15%/17% Cash/PIK/Toggle First Lien Notes due 2026 on January 15, 2021; and
● the issuance of £140.0 million and €296.0 million 10.75%/11.25% Cash/PIK Term Loans due 2023 on February 19, 2021,
partially offset by:
● a reduction in the effective interest rate from 6.37% to 4.46% on $2,017.5 million aggregate principal amount of our senior subordinated notes exchanged for $1,462.3 million aggregate principal amount of second lien notes on July 31, 2020;
● the extinguishment of $104.5 million of Second Lien Notes due 2026 on December 14, 2020 in exchange for common shares;
● the conversion of $600.0 million 2.95% Convertible Notes due 2026 to 44,422,860 Class A common shares on January 27, 2021;
● the borrowings under revolving credit facilities of approximately $325.1 million during the three months ended March 31, 2020 that remained outstanding until February and March 2021;
● the repayment of £89.7 million and €12.8 million outstanding amounts under the Odeon revolver on February 19, 2021;
● a decline in interest rates related to borrowings under the Senior Secured Term Loan due 2026; and
● the repayment in March 2021 of $212.2 million under the 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 additional information about our indebtedness.
Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was ($6.7) million for the three months ended September 30, 2021 compared to $10.6 million for the three months ended September 30, 2020. The decrease in equity in loss of $17.3 million was primarily due to decreases in equity in losses from DCIP of $13.5 million.
Investment income. Investment income was $0 million for the three months ended September 30, 2021 compared to investment income of $4.1 million for the three months ended September 30, 2020.
Income tax provision (benefit). The income tax provision (benefit) was $(1.9) million and $4.6 million for the three months ended September 30, 2021 and September 30, 2020, 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 $224.2 million and $905.8 million during the three months ended September 30, 2021 and September 30, 2020, respectively. Net loss during the three months ended September 30, 2021 compared to net loss for the three months ended September 30, 2020 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 impairment of long-lived assets, decreases in depreciation and amortization expense, decreases in other expense and decreases in equity losses in non-consolidated entities, decreases in income tax provision and decreases in foreign currency exchange rates, partially offset by higher interest expense and general and administrative costs and lower investment income.
Theatrical Exhibition–U.S. Markets
Revenues. Total revenues increased $490.6 million from $47.3 million to $537.9 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Admissions revenues increased $274.8 million from $18.4 million to $293.2 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to an increase in attendance from 2.0 million patrons to 26.7 million patrons and a 17.2% increase in average ticket price. The increase in attendance was primarily due to the fact that operations at our theatres in U.S. markets were temporarily suspended during most of the third quarter of 2020 as a result of the COVID-19 pandemic, which also resulted in fewer new films released in the prior
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year. As discussed above, by the start of the second quarter of 2021, we had resumed operations at nearly all of our domestic theatres and during the second quarter of 2021, seating capacity restrictions continued to be lifted at U.S. theatre locations. The increase in average ticket price was primarily due to strategic pricing initiatives put in place over the prior year, lower frequency on our A-List subscription program and on our AMC Stubs program, partially offset by loyalty program discounts.
Food and beverage revenues increased $187.3 million from $10.5 million to $197.8 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the increases in attendance and an increase in food and beverage revenues per patron. Food and beverage per patron increased 38.5% from $5.35 to $7.41 due to several contributing factors, including increases in units sold per transaction and an increase in dine-in percentages and mobile orders along with price increases.
Total other theatre revenues increased $28.5 million from $18.4 million to $46.9 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, 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 $65.6 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the increase in attendance and an increase in average screens operated partially offset by a decrease in impairment charges of $185.6 million. Film exhibition costs increased $117.2 million from $9.5 million to $126.7 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the increase in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 43.2% for the three months ended September 30, 2021 and 51.6% during the three months ended September 30, 2020. The decrease in film exhibition cost percentage is primarily due to the concentration of box office revenues in lower grossing films and library content in the current year, which typically results in lower film exhibition costs.
Food and beverage costs increased $24.0 million from $4.4 million to $28.4 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. 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 14.4% for the three months ended September 30, 2021 and 41.9% during the three months ended September 30, 2020. Food and beverage costs included $3.2 million of charges for obsolete inventory during the three months ended September 30, 2020, due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 43.0% during the three months ended September 30, 2021 and not meaningful during the three months ended September 30, 2020 due to the low levels of attendance in the prior year. Rent expense increased 2.3%, or $3.6 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. 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 $292.8 million that have been deferred to the fourth quarter of 2021 and future years as of September 30, 2021.
Merger, acquisition and other costs. Merger, acquisition and other costs were $1.3 million during the three months ended September 30, 2021 compared to $0.7 million during the three months ended September 30, 2020, primarily due to increases in legal and professional costs related to strategic contingent planning.
Other. Other general and administrative expense increased 54.7% or $10.5 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to increases in bonus expense and stock-based compensation expense due to improvements in expected annual performance compared to annual targets and the modification and acceleration of vesting of awards during the current and prior year and increases in insurance costs. 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 14.4% or $13.2 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to lower depreciation expense on theatres impaired in calendar 2019 and 2020.
Impairment of long-lived assets and goodwill. During the three months ended September 30, 2020, we recognized non-cash impairment losses of $28.1 million on 49 theatres in the U.S. markets with 527 screens (in
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Alabama, California, Colorado, Florida, Illinois, Indiana, Iowa, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Wisconsin, and Wyoming) which were related to property, net, operating lease right-of-use assets, net and other long-term assets.
We performed quantitative impairment evaluations of our definite-lived intangible assets as of September 30, 2020 and recorded an impairment charge of $6.4 million during the three months ended September 30, 2020.
We performed quantitative impairment evaluations of our goodwill as of September 30, 2020 and recorded an impairment charge of $151.2 million for our Domestic Theatres reporting unit.
Other expense. Other expense was $13.6 million during the three months ended September 30, 2021 due primarily to a loss on extinguishment of $14.4 million related to the redemption of $35.0 million principal amount of 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026. Other expense of $132.2 million during the three months ended September 30, 2020 was primarily due to third party expenses of $36.3 million related to the restructuring of our debt, the increase in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2026 of $89.9 million and the decrease in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $5.9 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.
Interest expense. Interest expense decreased $13.4 million to $78.5 million for the three months ended September 30, 2021 compared to $91.9 million during the three months ended September 30, 2020, primarily due to:
● a reduction in the effective interest rate from 6.37% to 4.46% on $2,017.5 million aggregate principal amount of our senior subordinated notes exchanged for $1,462.3 million aggregate principal amount of second lien notes on July 31, 2020;
● the extinguishment of $104.5 million of Second Lien Notes due 2026 on December 14, 2020 in exchange for common shares;
● the conversion of $600.0 million 2.95% Convertible Notes due 2026 to 44,422,860 Class A common shares on January 27, 2021;
● the borrowings under revolving credit facilities of approximately $212.1 million during the three months ended March 31, 2020 that remained outstanding until March 2021;
● a decline in interest rates related to borrowings under the Senior Secured Term Loan due 2026; and
● the repayment in March 2021 of $212.2 million under the Senior Secured Revolving Credit Facility,
partially offset by:
● the issuance of $300 million of 10.5% First Lien Notes due 2026 on July 31, 2020; and
● the issuance of $100 million of 15%/17% Cash/PIK/Toggle First Lien Notes due 2026 on January 15, 2021.
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 additional information about our indebtedness.
Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was ($6.1) million for the three months ended September 30, 2021 compared to $8.4 million for the three months ended September 30, 2020. The decrease in equity in loss of $14.5 million was primarily due to decreases in equity in losses from DCIP of $13.5 million.
Investment income. Investment income was $0.0 million for the three months ended September 30, 2021 compared to investment income of $4.1 million for the three months ended September 30, 2020.
Income tax provision (benefit). The income tax provision (benefit) was ($2.3) million and $6.2 million for the three months ended September 30, 2021 and September 30, 2020, 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 $202.2 million and $778.1 million during the three months ended September 30, 2021
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and September 30, 2020, respectively. Net loss during the three months ended September 30, 2021 compared to net loss for the three months ended September 30, 2020 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 impairment of long-lived assets, decreases in depreciation and amortization expense, decreases in other expense, decreases in equity losses in non-consolidated entities and decreases in income tax provision, partially offset by higher interest expense and general and administrative costs, higher rent expense and lower investment income.
Theatrical Exhibition - International Markets
Revenues. Total revenues increased $153.1 million from $72.2 million to $225.3 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Admissions revenues increased $87.4 million from $44.5 million to $131.9 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to an increase in attendance from 4.5 million patrons to 13.3 million patrons. The increase in attendance was primarily due to the fact that operations at our theatres in International markets were temporarily suspended during most of the third quarter of 2020 as a result of the COVID-19 pandemic which also resulted in fewer new films released in the prior year. As discussed above, by the start of the second quarter of 2021, we had resumed operations at certain of our International theatres and during the second quarter of 2021 we continued to resume operations at International theatre locations.
Food and beverage revenues increased $48.8 million from $18.6 million to $67.4 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the increase in attendance. Food and beverage per patron increased 23.7% from $4.10 to $5.07 due to the minimal volumes of attendance year-over-year reflecting an increase in average purchase per patron, partially offset by the decrease in foreign currency translation rates.
Total other theatre revenues increased $16.9 million from $9.1 million to $26.0 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, 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 decreases in foreign currency translation rates.
Operating costs and expenses. Operating costs and expenses increased $47.9 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the increase in attendance and an increase in average screens operated partially offset by a decrease in foreign currency translation rates. Film exhibition costs increased $32.7 million from $17.1 million to $49.8 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to the increase in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 37.8% for the three months ended September 30, 2021 and 38.4% during the three months ended September 30, 2020.
Food and beverage costs increased $10.1 million from $4.4 million to $14.5 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. 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 21.5% for the three months ended September 30, 2021 and 23.7% during the three months ended September 30, 2020.
As a percentage of revenues, operating expense was 40.1% during the three months ended September 30, 2021and not meaningful during the three months ended September 30, 2020 due to the low levels of attendance in the prior year. Rent expense decreased 5.3%, or $3.0 million, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. 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 $83.1 million that have been deferred to the fourth quarter of 2021 and future years as of September 30, 2021.
Merger, acquisition and other costs. Merger, acquisition and other costs were $0.1 million during the three months ended September 30, 2021 compared to $0.3 million during the three months ended September 30, 2020, primarily due to increases in legal and professional costs related to strategic contingent planning.
Other. Other general and administrative expense increased 31.9% or $4.3 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to increases in
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bonus expense due to improvements in expected annual performance compared to annual targets. 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 20.7% or $6.6 million during the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to lower depreciation expense on theatres impaired in calendar 2019 and 2020 and the decrease in foreign currency translation rates.
Impairment of long-lived assets, indefinite-lived intangible assets and goodwill. We performed quantitative impairment evaluations of our indefinite-lived intangible assets related to the Odeon and Nordic tradenames as of September 30, 2020 and recorded impairment charges of $4.5 million and $0.1 million related to the Odeon and Nordic tradenames, respectively, during the three months ended September 30, 2020.
We performed a quantitative impairment evaluation of our goodwill as of September 30, 2020 and recorded an impairment charge of $5.6 million for our International Theatres reporting unit during the three months ended September 30, 2020.
Other income. Other income of $25.3 million during the three months ended September 30, 2021 was primarily due to $24.7 million in government assistance related to COVID-19. Other income of $7.2 million during the three months ended September 30, 2020 was primarily due to government assistance related to COVID-19 of $13.5 million, partially offset by estimated credit losses related to contingent lease guarantees of $6.1 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 income.
Interest expense. Interest expense increased $18.4 million to $20.8 million for the three months ended September 30, 2021 compared to $2.4 million during the three months ended September 30, 2020, primarily due to:
● the issuance of £140.0 million and €296.0 million 10.75%/11.25% Cash/PIK Term Loans due 2023 on February 19, 2021,
partially offset by:
● the borrowings under revolving credit facilities of approximately $113.6 million during the three months ended March 31, 2020 that remained outstanding until February and March 2021; and
● the repayment of £89.7 million and €12.8 million outstanding amounts under the Odeon revolver on February 19, 2021.
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 additional information about our indebtedness.
Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was ($0.6) million for the three months ended September 30, 2021 compared to $2.2 million for the three months ended September 30, 2020.
Investment income. Investment income was $0 million for the three months ended September 30, 2021 and September 30, 2020.
Income tax provision (benefit). The income tax provision (benefit) was $0.4 million and ($1.6) million for the three months ended September 30, 2021 and September 30, 2020, 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 $22.0 million and $127.7 million during the three months ended September 30, 2021 and September 30, 2020, respectively. Net loss during the three months ended September 30, 2021 compared to net loss for the three months ended September 30, 2020 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 impairment of long-lived assets, decreases in depreciation and amortization expense, decreases in rent expense, increases in other income and decreases in equity losses in non-consolidated entities and decreases in foreign currency exchange rates, partially offset by higher
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interest expense, higher general and administrative costs and lower income tax benefit.
Results of Operations— For the Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020
Condensed Consolidated Results of Operations
Revenues. Total revenues increased 25.6%, or $276.3 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Admissions revenues increased 15.2%, or $95.8 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to a 2.6% increase in attendance and a 12.2% 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 loyalty program discounts and a decrease in foreign currency translation rates.
Food and beverage revenues increased 50.1%, or $159.2 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to the increase in food and beverage per patron and the increase in attendance. Food and beverage per patron increased 46.3% from $4.73 to $6.92 due to several contributing factors including increases in units sold per transaction and increases in the percentage of patrons making purchases due to higher child percentages, private theatre rentals, an increase in dine-in percentages, mobile orders along with price increases and reduced loyalty program penetration, partially offset by a decrease in foreign currency translation rates.
Total other theatre revenues increased 16.3%, or $21.3 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, 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 decreases in foreign currency translation rates.
Operating costs and expenses. Operating costs and expenses decreased $1,987.2 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to the $2,047.8 million impairment of long-lived assets charge recorded during the nine months ended September 30, 2020 and the decrease in foreign currency translation rates. Film exhibition costs decreased 0.4%, or $1.1 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. As a percentage of admissions revenues, film exhibition costs were 40.9% for the nine months ended September 30, 2021 and 47.2% for the nine months ended September 30, 2020. The decrease in film exhibition cost percentage is primarily due to the concentration of box office revenues in lower grossing films and library content in the current year, which typically results in lower film exhibition costs and library content.
Food and beverage costs increased 18.3%, or $12.2 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. 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 16.5% for the nine months ended September 30, 2021 and 21.0% for the nine months ended September 30, 2020. Food and beverage costs included $10.4 million of charges for obsolete inventory during the nine months ended September 30, 2020 due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 55.1% for the nine months ended September 30, 2021 and 61.5% for the nine months ended September 30, 2020. Rent expense decreased 9.4%, or $63.7 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due primarily to cash rent abatements from landlords, declines in deferred rent expense due to the impairment of right-of-use assets in calendar 2019 and 2020, and 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 $375.9 million that have been deferred to the fourth quarter of 2021 and future years as of September 30, 2021.
Merger, acquisition and other costs. Merger, acquisition and other costs were $12.4 million during the nine months ended September 30, 2021 compared to $3.0 million during the nine months ended September 30, 2020,
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primarily due to increases in legal and professional costs related to strategic contingent planning.
Other. Other general and administrative expense increased 68.3% or $62.4 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to increases in bonus expense and stock-based compensation expense as a result of improvements in expected annual performance compared to annual targets and the modification and acceleration of vesting of awards during the current and prior year and increases in insurance costs and professional expenses. 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 11.5% or $42.2 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to lower depreciation expense on theatres impaired in calendar 2019 and 2020 and the decrease in foreign currency translation rates.
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill. During the nine months ended September 30, 2020, we recognized non-cash impairment losses of $109.5 million on 75 theatres in the U.S. markets with 851 screens (in Alabama, Arkansas, California, Colorado, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming) which were related to property, net, operating lease right-of-use assets, net and other long-term assets and $9.9 million on 23 theatres in the International markets with 213 screens (in Germany, Italy, Spain, UK and Sweden) which were related to property, net and operating lease right-of-use assets, net.
We performed quantitative impairment evaluations of our indefinite-lived intangible assets as of March 31, 2020 and September 30, 2020 related to the AMC, Odeon and Nordic tradenames and recorded impairment charges of $12.9 million related to the Odeon and Nordic tradenames during the nine months ended September 30, 2020. In addition, we performed quantitative impairment evaluations of our definite-lived intangible assets as of March 31, 2020 and September 30, 2020 and recorded impairment charges of $14.4 million.
We performed quantitative impairment evaluations of our goodwill as of March 31, 2020 and September 20, 2020 and recorded impairment charges of $1,276.1 million and $625.0 million during the nine months ended September 30, 2020 for our Domestic Theatres and International Theatres reporting units, respectively.
Other expense (income). Other income of $71.8 million during the nine months ended September 30, 2021 was primarily due to $79.7 million in government assistance related to COVID-19 and estimated credit income of $5.7 million related to contingent lease guarantees, partially offset by a loss on extinguishment of $14.4 million related to the redemption of $35.0 million principal amount of 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026 and $1.0 million of financing fees related to the write-off of unamortized deferred charges on the Odeon revolver. Other expense of $145.3 million during the nine months ended September 30, 2020 was primarily due to third party expenses of $39.1 million related to the restructuring of our debt, the increase in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2026 of $89.4 million, the decrease in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $19.6 million, estimated credit losses related to contingent lease guarantees of $15.3 million, partially offset by international government assistance related to COVID-19 of $17.9 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 increased $92.7 million to $361.0 million for the nine months ended September 30, 2021 compared to $268.3 million during the nine months ended September 30, 2020, primarily due to:
● the issuance of $500 million of 10.5% First Lien Notes due 2025 on April 24, 2020;
● the issuance of $300 million of 10.5% First Lien Notes due 2026 on July 31, 2020;
● the issuance of $100 million of 15%/17% Cash/PIK/Toggle First Lien Notes due 2026 on January 15, 2021;
● the conversion of $600.0 million 2.95% Convertible Notes due 2026 to 44,422,860 Class A common shares on January 27, 2021 that resulted in the write-off to interest expense of $70.0 million of
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unamortized discount and deferred charges at the date of conversion following the guidance in ASC 815-15-40-1; and
● the issuance of £140.0 million and €296.0 million 10.75%/11.25% Cash/PIK Term Loans due 2023 on February 19, 2021,
partially offset by:
● a reduction in the effective interest rate from 6.37% to 4.46% on $2,017.5 million aggregate principal amount of our senior subordinated notes exchanged for $1,462.3 million aggregate principal amount of second lien notes on July 31, 2020;
● the extinguishment of $104.5 million of Second Lien Notes due 2026 on December 14, 2020 in exchange for common shares;
● borrowings under revolving credit facilities of approximately $325.1 million during the nine months ended September 30, 2020 that remained outstanding until February and March 2021;
● the repayment of £89.7 million and €12.8 million outstanding amounts under the Odeon revolver on February 19, 2021;
● a decline in interest rates related to borrowings under the Senior Secured Term Loan due 2026; and
● the repayment in March 2021 of $212.2 million under the 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 additional information about our indebtedness.
Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was ($1.2) million for the nine months ended September 30, 2021 compared to $25.9 million for the nine months ended September 30, 2020. The decrease in equity in loss of $27.1 million was primarily due to decreases in equity in losses from DCIP of $25.2 million, partially offset by decreases in equity earnings on other investments of $2.0 million.
Investment (income) expense. Investment income was ($8.3) million for the nine months ended September 30, 2021 compared to investment expense of $4.0 million for the nine months ended September 30, 2020. Investment income includes a gain on sale of the Baltics of $5.5 million during the nine months ended September 30, 2021. Investment expense includes an impairment charge of $7.2 million related to an investment , partially offset by a payment of $3.7 million under the NCM tax receivable agreement during the nine months ended September 30, 2020.
Income tax provision (benefit). The income tax provision (benefit) was ($13.9) million and $66.7 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. The decrease in income tax expense is primarily due to the recording of International valuation allowances against deferred tax assets held in Spain of $40.1 million and Germany of $33.1 million during the nine months ended September 30, 2020. 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 $1,135.4 million and $3,643.3 million during the nine months ended September 30, 2021 and September 30, 2020, respectively. Net loss during the nine months ended September 30, 2021 compared to net loss for the nine months ended September 30, 2020 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 impairment of long-lived assets, decreases in depreciation and amortization expense, decreases in rent expense, increases in other income, decreases in equity losses in non-consolidated entities, increases in investment income, decreases in income tax provision and decreases in foreign currency exchange rates, partially offset by higher interest expense and higher general and administrative costs.
Theatrical Exhibition–U.S. Markets
Revenues. Total revenues increased 45.0%, or $325.6 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Admissions revenues increased 35.5%, or $144.7 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to a 21.9% increase in attendance and a 11.2% 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
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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 and increases in IMAX and Premium content and lower frequency on our A-List subscription program.
Food and beverage revenues increased 70.1%, or $159.1 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to the increase in food and beverage per patron and the increase in attendance. Food and beverage per patron increased 39.6% from $5.45 to $7.61 due to several contributing factors including increases in units sold per transaction and increases in the percentage of patrons making purchases due to higher child percentages, private theatre rentals, an increase in dine-in percentages, mobile orders along with price increases and reduced loyalty program penetration.
Total other theatre revenues increased 24.3%, or $21.8 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, 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 decreased $1,270.4 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to the $1,399.9 million impairment of long-lived assets charge recorded during the nine months ended September 30, 2020. Film exhibition costs increased 11.0%, or $22.9 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, due to the increase in admissions revenues, partially offset by a decrease in film exhibition costs as a percentage of admissions revenues. As a percentage of admissions revenues, film exhibition costs were 41.9% for the nine months ended September 30, 2021 and 51.1% for the nine months ended September 30, 2020. The decrease in film exhibition cost percentage is primarily due to the concentration of box office revenues in lower grossing films and library content in the current year, which typically results in lower film exhibition costs.
Food and beverage costs increased 34.3%, or $14.6 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. 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 nine months ended September 30, 2021 and 18.8% for the nine months ended September 30, 2020. Food and beverage costs included $7.2 million of charges for obsolete inventory during the nine months ended September 30, 2020 due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 53.4% for the nine months ended September 30, 2021 and 62.7% for the nine months ended September 30, 2020. Rent expense decreased 8.9%, or $44.1 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due primarily to cash rent abatements from landlords, declines in deferred rent expense due to the impairment of right-of-use assets in calendar 2019 and 2020, and 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 $292.8 million that have been deferred to the fourth quarter of 2021 and future years as of September 30, 2021.
Merger, acquisition and other costs. Merger, acquisition and other costs were $8.5 million during the nine months ended September 30, 2021 compared to $2.7 million during the nine months ended September 30, 2020, primarily due to increases in legal and professional costs related to strategic contingent planning.
Other. Other general and administrative expense increased 110.1% or $55.4 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to increases in bonus expense and stock-based compensation expense as a result of improvements in expected annual performance compared to annual targets and the modification and acceleration of vesting of awards during the current and prior year and increases in insurance costs and professional expenses. 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 11.4% or $31.4 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to lower depreciation expense on theatres impaired in calendar 2019 and 2020.
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill. During the nine months ended September 30, 2020, we recognized non-cash impairment losses of $109.5 million on 75 theatres in
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the U.S. markets with 851 screens (in Alabama, Arkansas, California, Colorado, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming) which were related to property, net, operating lease right-of-use assets, net and other long-term assets.
We performed quantitative impairment evaluations of our definite-lived intangible assets as of March 31, 2020 and September 30, 2020 and recorded impairment charges of $14.4 million during the nine months ended September 30, 2020.
We performed quantitative impairment evaluations of our goodwill as of March 31, 2020 and September 30, 2020 and recorded impairment charges of $1,276.1 million for our Domestic Theatres reporting unit.
Other expense. Other expense of $10.2 million during the nine months ended September 30, 2021 was primarily due to a loss on extinguishment of $14.4 million related to the redemption of $35.0 million principal amount of 15%/17% Cash/PIK Toggle First Lien Secured Notes due 2026, partially offset by $4.6 million in government assistance related to COVID-19. Other expense of $157.8 million during the nine months ended September 30, 2020 was primarily due to third party expenses of $39.1 million related to the restructuring of our debt, the increase in fair value of our derivative liability for the embedded conversion feature in our Convertible Notes due 2026 of $89.4 million, the decrease in fair value of our derivative asset for the contingent call option related to the Class B common stock purchase and cancellation agreement of $19.6 million and estimated credit losses related to contingent lease guarantees of $9.2 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.
Interest expense. Interest expense increased $49.6 million to $310.9 million for the nine months ended September 30, 2021 compared to $261.3 million during the nine months ended September 30, 2020, primarily due to:
● the issuance of $500 million of 10.5% First Lien Notes due 2025 on April 24, 2020;
● the issuance of $300 million of 10.5% First Lien Notes due 2026 on July 31, 2020;
● the issuance of $100 million of 15%/17% Cash/PIK/Toggle First Lien Notes due 2026 on January 15, 2021; and
● the conversion of $600.0 million 2.95% Convertible Notes due 2026 to 44,422,860 Class A common shares on January 27, 2021 that resulted in the write-off to interest expense of $70.0 million of unamortized discount and deferred charges at the date of conversion following the guidance in ASC 815-15-40-1,
partially offset by:
● a reduction in the effective interest rate from 6.37% to 4.46% on $2,017.5 million aggregate principal amount of our senior subordinated notes exchanged for $1,462.3 million aggregate principal amount of second lien notes on July 31, 2020;
● the extinguishment of $104.5 million of Second Lien Notes due 2026 on December 14, 2020 in exchange for common shares;
● borrowings under revolving credit facilities of approximately $212.2 million during the three months ended March 31, 2020 that remained outstanding until March 2021;
● a decline in interest rates related to borrowings under the Senior Secured Term Loan due 2026; and
● the repayment in March 2021 of $212.2 million under the 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 additional information about our indebtedness.
Equity in (earnings) loss of non-consolidated entities. Equity in (earnings) loss of non-consolidated entities was ($4.9) million for the nine months ended September 30, 2021 compared to $21.7 million for the nine months ended September 30, 2020. The decrease in equity in loss of $26.6 million was primarily due to decreases in equity in losses from DCIP of $25.2 million and decreases in equity losses on other investments of $1.4 million.
Investment (income) expense. Investment income was ($2.8) million for the nine months ended September 30, 2021 compared to investment expense of $4.1 million for the nine months ended September 30, 2020. Investment
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expense includes impairment charges of $7.2 million related to investments, partially offset by a payment of $3.7 million under the NCM tax receivable agreement during the nine months ended September 30, 2020.
Income tax provision (benefit). The income tax provision (benefit) was ($10.2) million and $7.7 million for the nine months ended September 30, 2021 and September 30, 2020, 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 $911.9 million and $2,657.3 million during the nine months ended September 30, 2021 and September 30, 2020, respectively. Net loss during the nine months ended September 30, 2021 compared to net loss for the nine months ended September 30, 2020 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 impairment of long-lived assets, decreases in depreciation and amortization expense, decreases in rent expense decreases in other expense, decreases in equity losses in non-consolidated entities, increases in investment income, decreases in income tax provision, partially offset by higher interest expense and higher general and administrative costs.
Theatrical Exhibition - International Markets
Revenues. Total revenues decreased 13.9%, or $49.3 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Admissions revenues decreased 21.8%, or $48.9 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to a 28.8% decrease in attendance, partially offset by a 9.9% increase in average ticket price. The decrease in attendance was primarily due to the COVID-19 pandemic 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 includes the impact of the decrease in foreign currency translation rates and reflects minimal volumes of attendance.
Food and beverage revenues increased $0.1 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to the increase in food and beverage per patron. Food and beverage per patron increased 40.8% from $3.55 to $5.00 due to the minimal volumes of attendance year-over-year reflecting an increase in average purchase per patron, partially offset by the decrease in foreign currency translation rates.
Total other theatre revenues decreased 1.2%, or $0.5 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
Operating costs and expenses. Operating costs and expenses decreased $716.8 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to a $647.9 million impairment of long-lived assets charge recorded during the nine months ended September 30, 2020 and a decrease in foreign currency translation rates. Film exhibition costs decreased 26.6%, or $24.0 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to the decrease in admissions revenues. As a percentage of admissions revenues, film exhibition costs were 37.8% for the nine months ended September 30, 2021 and 40.3% for the nine months ended September 30, 2020. The decrease in film exhibition cost percentage is primarily due to the concentration of box office revenues in lower grossing films in the current year, which typically results in lower film exhibition costs and library content.
Food and beverage costs decreased 10.0%, or $2.4 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease in food and beverage costs was primarily due to the decrease in food and beverage revenues. As a percentage of food and beverage revenues, food and beverage costs were 24.0% for the nine months ended September 30, 2021 and 26.6% for the nine months ended September 30, 2020. Food and beverage costs included $3.2 million of charges for obsolete inventory during the nine months ended September 30, 2020 due to the suspension of theatre operations.
As a percentage of revenues, operating expense was 61.1% for the nine months ended September 30, 2021 and 59.0% for the nine months ended September 30, 2020. Rent expense decreased 10.9%, or $19.6 million, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, due primarily to cash rent abatements from landlords, declines in deferred rent expense due to the impairment of right-of-use assets in calendar
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2019 and 2020, and 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 $83.1 million that have been deferred to the fourth quarter of 2021 and future years as of September 30, 2021.
Merger, acquisition and other costs. Merger, acquisition and other costs were $3.9 million during the nine months ended September 30, 2021 compared to $0.3 million during the nine months ended September 30, 2020, primarily due to increases in legal and professional costs related to strategic planning.
Other. Other general and administrative expense increased 17.1% or $7.0 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to increases in bonus expense and stock-based compensation expense as a result of improvements in expected annual performance compared to annual targets and the modification and acceleration of vesting of awards during the current and prior year, partially offset by decreases in foreign currency translation rates. 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 11.9% or $10.8 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to lower depreciation expense on theatres impaired in calendar 2019 and 2020 and the decrease in foreign currency translation rates.
Impairment of long-lived assets, definite and indefinite-lived intangible assets and goodwill. During the nine months ended September 30, 2020, we recognized non-cash impairment losses of $9.9 million on 23 theatres in the International markets with 213 screens (in Germany, Italy, Spain, UK and Sweden) which were related to property, net, and operating lease right-of-use assets, net.
We performed quantitative impairment evaluations of our indefinite-lived intangible assets related to the Odeon and Nordic tradenames as of March 31, 2012 and September 30, 2020 and recorded impairment charges of $12.9 million related to these assets during the nine months ended September 30, 2020.
We performed a quantitative impairment evaluation of our goodwill as of March 31, 2020 and September 30, 2020 and recorded impairment charges of $625.0 million for our International Theatres reporting unit during the nine months ended September 30, 2020.
Other income. Other income of $82.0 million during the nine months ended September 30, 2021 was primarily due to $75.1 million in government assistance related to COVID-19 and estimated credit income of $6.0 million related to contingent lease guarantees. Other income of $12.5 million during the nine months ended September 30, 2020 was primarily due to the international government assistance related to COVID-19 of $17.9 million, partially offset by estimated credit losses related to contingent lease guarantees of $6.1 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 increased $43.1 million to $50.1 million for the nine months ended September 30, 2021 compared to $7.0 million during the nine months ended September 30, 2020, primarily due to:
● the issuance of £140.0 million and €296.0 million 10.75%/11.25% Cash/PIK Term Loans due 2023 on February 19, 2021,
partially offset by:
● the repayment of £89.7 million and €12.8 million outstanding amounts under the Odeon revolver on February 19, 2021.
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 additional information about our indebtedness.
Equity in loss of non-consolidated entities. Equity in loss of non-consolidated entities was $3.7 million for the nine months ended September 30, 2021 compared to $4.2 million for the nine months ended September 30, 2020.
Investment (income) expense. Investment income was ($5.5) million for the nine months ended September
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30, 2021 compared to investment income of ($0.1) million for the nine months ended September 30, 2020. Investment income includes a gain on sale of the Baltics of $5.5 million during the nine months ended September 30, 2021.
Income tax provision (benefit). The income tax provision (benefit) was ($3.7) million and $59.0 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. The decrease in income tax expense is primarily due to the recording of International valuation allowances against deferred tax assets held in Spain of $40.1 million and Germany of $33.1 million during the nine months ended September 30, 2020. 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 $223.5 million and $986.0 million during the nine months ended September 30, 2021 and September 30, 2020, respectively. Net loss during the nine months ended September 30, 2021 declined compared to net loss for the three months ended September 30, 2020 due to decreases in impairment of long-lived assets, decreases in depreciation and amortization expense, increases in other income, increases in investment income, decreases in equity losses in non-consolidated entities, decreases in income tax provision, decreases in rent expense and decreases in foreign currency translation rates, partially offset by the decrease in attendance as a result of the impact of theatre closures related to COVID-19 in the current year, higher interest expense and general and administrative costs.
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 operations are beginning to resume, 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 September 30, 2021 and December 31, 2020 of $146.1 million and $(1,104.6) million, respectively. As of September 30, 2021 and December 31, 2020, working capital included operating lease liabilities of $605.9 million and $583.6 million, respectively, and deferred revenues of $392.1 million and $405.4 million, respectively. At September 30, 2021, we had $212.0 million unused borrowing capacity, net of letters of credit, under our $225.0 million Senior Secured Revolving Credit Facility. As of December 31, 2020, we had borrowed $212.2 million (the full availability net of standby letters of credit) under our $225.0 million Senior Secured Revolving Credit Facility. We also maintained a revolving credit facility due February 14, 2022 at our Odeon subsidiary (the “Odeon Revolver”). This facility was replaced on February 15, 2021 by the Odeon Term Loan Facility. Reference is made to Note 6—Corporate Borrowings and Finance Lease Obligations in the Notes to the Condensed Consolidated Financial Statements thereof under Item 1 of Part I of this Form 10-Q for further information about the Odeon Term Loan Facility. As of December 31, 2020, we had borrowed $120.8 million (the full availability net of standby letters of credit) under our £100.0 million Odeon Revolver ($136.3 million based on the foreign currency translation rate of 1.3628 on December 31, 2020).
As of September 30, 2021, we had cash and cash equivalents of approximately $1.6 billion. In response to the COVID-19 pandemic, we adjusted certain elements of our business strategy and took significant steps to preserve cash and we are continuing to take significant steps to preserve cash, by eliminating non-essential costs, including reductions to our variable costs and elements of our fixed cost structure.
In addition to preserving cash, we enhanced liquidity through debt issuances, debt exchanges and equity sales as previously reported in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2021 and June 30, 2021. See Note 6 — Corporate Borrowings and Finance Lease Obligations and Note 7 — Stockholders’ Equity in the Notes to the Condensed Consolidated Financial Statements in Item 1 of Part I in this Form 10-Q for further information.
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The table below summarizes net increase (decrease) in cash equivalents and restricted cash by quarter for the nine months ended September 30, 2021:
Three Months Ended
Nine Months Ended
March 31,
June 30,
September 30,
September 30,
(In millions)
2021
2021
2021
2021
Cash flows from operating activities:
Net cash used in operating activities
$
(312.9)
$
(233.8)
$
(113.9)
$
(660.6)
Cash flows from investing activities:
Net cash provided by (used in) investing activities
(16.0)
13.5
(28.8)
(31.3)
Cash flows from financing activities:
Net cash provided by (used in) financing activities
854.7
1,212.2
(48.3)
2,018.6
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(5.1)
5.6
(8.4)
(7.9)
Net increase (decrease) in cash and cash equivalents and restricted cash
520.7
997.5
(199.4)
1,318.8
Cash and cash equivalents and restricted cash at beginning of period
321.4
842.1
1,839.6
321.4
Cash and cash equivalents and restricted cash at end of period
$
842.1
$
1,839.6
$
1,640.2
$
1,640.2
Our net cash used in operating activities improved by $79.1 million during the three months ended June 30, 2021, and has further improved by $119.9 million from ($233.8) million to $(113.9) million during the three months ended September 30, 2021. This is primarily attributable to continued increases in attendance and industry box office revenues during the nine months ended September 30, 2021. We will continue to repay rent amounts that were deferred during the pandemic, which will increase its 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 $375.9 million of rentals that were deferred during the COVID-19 pandemic.
Our net cash provided by (used in) investing activities included:
● $(11.9) million of capital expenditures and $(9.3) million of investments in non-consolidated entities, partially offset by proceeds from the disposition of the Baltics’ theatres of $3.8 million and proceeds from the disposition of long-term assets of $1.4 million during the three months ended March 31, 2021;
● $31.4 million of proceeds from the disposition of the Baltics’ theatres, partially offset by $(17.9) million of capital expenditures during the three months ended June 30, 2021; and
● $(24.1) million of capital expenditures, $(5.8) million related to the acquisition of assets at two theatres and $(1.0) million of transaction costs related to the Baltics’ theatre sale, partially offset by $2.0 million of proceeds from disposition of long-term assets during the three months ended September 30, 2021.
Our net cash provided by (used in) financing activities included:
● Net proceeds from our debt and equity issuances of $861.9 million during the three months ended March 31, 2021;
● Net proceeds from our equity issuances of $1,219.6 million during the three months ended June 30, 2021; and
● Principal and premium payments of $(40.3) million related to an optional redemption of our First Lien Toggle Notes due 2026 during the three months ended September 30, 2021.
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 from our current levels to achieve levels in line with pre-
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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. However, there remain significant risks that may negatively impact attendance levels, 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 pursuant to which the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant (a secured leverage ratio) applicable to the Senior Secured Revolving Credit Facility from March 31, 2021 to March 31, 2022, (the Extended Covenant Suspension Period), as described, and on the terms and conditions specified, therein. We are currently subject to minimum liquidity requirements of approximately $144 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 $44 million) of which is required under the Odeon Term Loan Facility. Following the expiration of the Extended Covenant Suspension Period, we will be subject to the financial covenant under the Senior Secured Revolving Credit Facility, beginning with the quarter ending June 30, 2022. If the attendance levels increase consistent with our assumptions described above, we currently expect we will be able to comply with the financial covenant, however we do not anticipate the need to borrow under the Senior Secured Revolving Credit Facility during the next twelve months. See Note 6—Corporate Borrowings and Finance Lease Obligations in the Notes to the Condensed Consolidated Financial Statements thereof under Item 1 of Part I of this Form 10-Q for further information. Our liquidity needs thereafter will depend, among other things, on the timing of movie releases and our ability to generate cash from operations.
We received rent concessions provided by the lessors that aided in mitigating the economic effects of COVID-19 during the pandemic. These concessions primarily consisted of rent abatements and the deferral of rent payments. As a result, deferred lease amounts were approximately $375.9 million as of September 30, 2021. Our cash expenditures for rent increased significantly in both the second and third quarters of 2021. See Note 2—Leases in the Notes to the Condensed Consolidated Financial Statements thereof under Item 1 of Part I of this Form 10-Q for a summary of the estimated future repayment terms for the deferred lease amounts due to COVID-19.
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. Similarly, it is very difficult to predict when theatre attendance levels will normalize, which we expect will depend on the widespread availability and use of effective vaccines for the coronavirus. 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 release movies to theatrical exhibition and their streaming platforms on the same date (“day and 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.
We also realized significant cancellation of debt income (“CODI”) in connection with our debt restructuring. As a result of such CODI, we estimate a significant portion of our net operating losses will be eliminated as a result of tax attribute reductions. Any loss of tax attributes as a result of such CODI may adversely affect our cash flows and, therefore, our ability to service our indebtedness.
Cash Flows from Operating Activities
Cash flows used in operating activities, as reflected in the condensed consolidated statements of cash flows, were $660.6 million and $771.6 million during the nine months ended September 30, 2021 and September 30, 2020, respectively. The decrease in cash flows used in operating activities was primarily due to increased attendance levels, which resulted in higher operating results during the nine months ended September 30, 2021.
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Cash Flows from Investing Activities
Cash flows used in investing activities, as reflected in the condensed consolidated statements of cash flows, were $31.3 million and $154.8 million during the nine months ended September 30, 2021 and September 30, 2020, respectively. Cash outflows from investing activities include capital expenditures of $53.9 million and $156.0 million during the nine months ended September 30, 2021 and September 30, 2020, respectively. In 2020, as a result of the COVID-19 pandemic, we significantly reduced capital expenditures to maintenance levels.
During the nine months ended September 30, 2021, cash flows used in investing activities included proceeds from the disposition of assets of $34.2 million, primarily from the sale of our remaining equity interest in Estonia of $3.7 million and Lithuania of $30.5 million and proceeds received from the disposition of two properties of $3.4 million. During the nine months ended September 30, 2021, we made an additional investment of $9.3 million in Saudi Cinema Company LLC and acquired theatre assets of $5.8 million related to two theatres. During the nine months ended September 30, 2020, cash flows used in investing activities included an additional investment in Saudi Cinema Company LLC of $9.3 million and proceeds from the disposition of long-term assets of $8.6 million primarily related to seven properties and other asset sales.
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 expect capital expenditures (net of landlord contributions) to be between $80 million and $100 million for year ended December 31, 2021, primarily to maintain operations.
Cash Flows from Financing Activities
Cash flows provided by financing activities, as reflected in the condensed consolidated statements of cash flows, were $2,018.6 million and $1,082.5 million during the nine months ended September 30, 2021 and September 30, 2020, respectively. Cash flows from financing activities during the nine months ended September 30, 2021 was primarily due to the borrowings under the Odeon Term Loan Facility of $534.3 million, borrowings under the issuance of First Lien Toggle Notes due 2026 of $100.0 million, net proceeds from the sale of Class A common stock of $1,570.7 million, and net proceeds from Class A common stock issuance to Mudrick of $230.4 million, partially offset by the repayments under the revolving credit facilities of $335.0 million, principal and redemption premium under the First Lien Toggle Notes due 2026 of $40.3 million, payment for deferred financing costs of $19.9 million, and principal payments under the Term Loan due 2026 of $15.0 million.
During the nine months ended September 30, 2020, cash inflows from financing activities included borrowings under our First Lien Notes due 2025 of $490.0 million, First Lien Notes due 2026 of $270.0 million, revolving credit facilities of $322.2 million, and proceeds from sale of the noncontrolling interest in Forum Cinemas OU of $37.5 million, partially offset by the payment for deferred financing costs of $15.2 million and principal payments under the Term Loan due 2026 of $15.0 million. During the nine months ended September 30, 2020, we paid dividends and dividend equivalents of $4.3 million. The following is a summary of dividends declared to stockholders:
Amount per
Total Amount
Share of
Declared
Declaration Date
Record Date
Date Paid
Common Stock
(In millions)
February 26, 2020
March 9, 2020
March 23, 2020
$
0.03
$
3.2
Senior Secured Credit Facilities (Senior Secured Revolving Credit Facility and Senior Secured Term Loan due 2026). On March 8, 2021, we entered the Ninth Amendment, pursuant to which the requisite revolving lenders party thereto agreed to extend the suspension period for the financial covenant under our Credit Agreement from a period ending on March 31, 2021 to a period ending on March 31, 2022 (the “Extended Covenant Suspension Period”). As an ongoing condition to the suspension of the financial covenant, we also agreed to (i) a minimum liquidity test of $100 million, (ii) an anti-cash hoarding test at any time Revolving Loans are outstanding and (iii) additional reporting obligations. On March 8, 2021, we entered into the Tenth Amendment, pursuant to which we agreed that certain modifications to the Credit Agreement described in the Tenth Amendment require the consent of the majority of the revolving lenders party to the Tenth Amendment.
Odeon Term Loan Facility. On February 15, 2021, Odeon Cinemas Group Limited (“Odeon”), a wholly-owned subsidiary of the Company entered into a new £140.0 million and €296.0 million term loan facility agreement
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(the “Odeon Term Loan Facility”), by and among Odeon, the subsidiaries of Odeon party thereto, the lenders and other loan parties thereto and Lucid Agency Services Limited as agent and Lucid Trustee Services Limited as security agent. Approximately £89.7 million and €12.8 million of the net proceeds from the Odeon Term Loan Facility were used to repay in full Odeon’s obligations (including principal, interest, fees and cash collateralized letters of credit) under its existing revolving credit facility and the remaining net proceeds will be used for general corporate purposes. The Odeon Term Loan Facility has a maturity of August 19, 2023 (2.5 years from the date on which it is first drawn). Borrowings under the Odeon Term Loan Facility bear interest at a rate equal to 10.75% per annum during the first year and 11.25% thereafter and each interest period is 3 months, or such other period agreed between us and the Agent. The interest is capitalized on the last day of each interest period and added to the outstanding principal amount, however Odeon has the option to elect to pay interest in cash. All obligations under the Odeon Term Loan Facility are guaranteed by certain subsidiaries of Odeon. We are subject to minimum liquidity requirements of £32.5 million (approximately $44 million) required under the Odeon Term Loan Facility, measured at each quarter end date.
First Lien Toggle Notes due 2026. On January 15, 2021, we issued $100.0 million aggregate principal amount of our First Lien Toggle Notes due 2026 as contemplated by the previously disclosed commitment letter with Mudrick Capital Management, LP, dated as of December 10, 2020. The First Lien Toggle Notes due 2026 were issued pursuant to an indenture dated as of January 15, 2021 among us, the guarantors named therein and the U.S. Bank National Association, as trustee and collateral agent. On September 30, 2021, we exercised an option to repurchase $35.0 million of our First Lien Toggle Notes due 2026. The total cost to exercise this repurchase option was $41.3 million, including principal, redemption premium and accrued and unpaid interest. As a result of this debt reduction, our annual interest cost has been reduced by $5.25 million. The First Lien Toggle Notes due 2026 bear cash interest at a rate of 15% per annum payable semi-annually in arrears on January 15 and July 15, beginning on July 15, 2021. Interest for the first three interest periods after the issue date may, at our option, be paid in PIK interest at a rate of 17% per annum, and thereafter interest shall be payable solely in cash. The First Lien Toggle Notes due 2026 will mature on April 24, 2026. The indenture provides that the First Lien Toggle Notes due 2026 are general senior secured obligations of the Company and are secured on a pari passu basis with the Senior Credit Facilities, the First Lien Notes due 2026, the First Lien Notes due 2025, and the Convertible Notes due 2026.
Convertible Notes. On January 27, 2021, affiliates of Silver Lake and certain co-investors (collectively, the “Noteholders”) elected to convert (the “Conversion”) all $600.0 million principal amount of our Convertible Notes due 2026 into shares of our Class A common stock at a conversion price of $13.51 per share. The Conversion settled on January 29, 2021 and resulted in the issuance of 44,422,860 shares of our Class A common stock to the Noteholders. The Conversion reduced our first-lien indebtedness by $600.0 million. Pursuant to the Stock Repurchase and Cancellation Agreement with Dalian Wanda Group Co., Ltd. (“Wanda”) dated as of September 14, 2018, 5,666,000 shares of our Class B common stock held by Wanda were forfeited and cancelled in connection with the Conversion.
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.
Contractual Obligations, Commitments and Contingencies
We have commitments and contingencies for finance leases, corporate borrowings, operating leases, capital related betterments and pension funding that were summarized in a table in our Annual Report on Form 10–K for the year ended December 31, 2020. Except as set forth above and below with respect to corporate borrowings and leases, since December 31, 2020, there have been no material changes to the commitments and contingencies outside of the ordinary course of business.
We borrowed under our Odeon Term Loan Facility, issued First Lien Toggle Notes due 2026, and Silver Lake and certain co-investors elected to convert all of our Convertible Notes due 2026 into shares of our Class A common stock. 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 table that provides the principal payments required and maturities of corporate borrowings as of September 30, 2021.
We received rent concessions provided by the lessors that aided or will aid, in mitigating the economic effects of COVID-19. These concessions primarily consist of deferral of rent payments and rent abatements. See Note 2—Leases 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 table of the minimum annual payments required under existing operating and finance lease liabilities (net present value thereof) as of September 30, 2021.
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Depending on the trading prices of our Class A common stock, we may have a significant cash tax liability to cover withholding obligations upon vesting of awards under our Equity Incentive Plan with approximately 4,881,000 shares expected to vest over the next six months and an estimated blended tax withholding rate of 45%. We expect to withhold shares based on historical elections by participants under the terms of the plan, equivalent to the cash tax requirements for federal, state and local withholdings, pay the required tax obligation and return the withheld shares to the Equity Incentive Plan.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.