NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the
three and nine
months ended
September 30, 2016
and
2015
(unaudited)
(in thousands except share and per share data)
NOTE 1—BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Carmike Cinemas, Inc. and its subsidiaries (referred to as “we”, “us”, “our”, and the “Company”) has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). This information reflects all adjustments which in the opinion of management are necessary for a fair presentation of the balance sheet as of
September 30, 2016
and
December 31, 2015
, the results of operations for the
three and nine
month periods ended
September 30, 2016
and
2015
and cash flows for the
nine
months ended
September 30, 2016
and
2015
. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q. The Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
. That report includes a summary of the Company’s critical accounting policies. There have been no material changes in the Company’s accounting policies during the first
nine
months of
2016
.
The consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
Accounting Estimates
In the preparation of financial statements in conformity with GAAP, management must make certain estimates, judgments and assumptions. These estimates, judgments and assumptions are made when accounting for items and matters such as, but not limited to, depreciation, amortization, asset valuations, impairment assessments, lease classification, employee benefits, income taxes, reserves and other provisions and contingencies. These estimates are based on the information available when recorded. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are recognized in the period they are determined.
Impairment of Long-Lived Assets
Long-lived assets are tested for recoverability whenever events or circumstances indicate that the assets’ carrying values may not be recoverable. The Company performs its impairment analysis at the individual theatre-level, the lowest level of independent, identifiable cash flow. Management reviews all available evidence when assessing long-lived assets for impairment, including negative trends in theatre-level cash flow, the impact of competition, the age of the theatre, and alternative uses of the assets. The Company’s evaluation of negative trends in theatre-level cash flow considers the seasonality of the business, with significant revenues and cash flow generated in the summer and year-end holiday season. Absent any unusual circumstances, management evaluates new theatres for potential impairment only after a theatre has been open and operational for a sufficient period of time to allow its operations to mature.
For those assets that are identified as potentially being impaired, if the undiscounted future cash flows from such assets are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the asset’s fair value. The fair value of the assets is primarily estimated using the discounted future cash flow of the assets with consideration of other valuation techniques and using assumptions consistent with those used by market participants. Significant judgment is involved in estimating cash flows and fair value; significant assumptions include attendance levels, admissions and concessions pricing, and the weighted-average cost of capital. Management’s estimates are based on historical and projected operating performance.
Fair Value Measurements
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term maturities of these assets and liabilities.
The fair value of the Senior Secured Notes and Credit Facility described in Note 3-Debt is estimated based on quoted market prices at the date of measurement.
See Note 11-Acquisitions for fair value of assets acquired.
Comprehensive Income
The Company has no other comprehensive income items.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09,
Revenue from Contracts with Customers
. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: identify contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification Topic No. 605, “Revenue Recognition,” most industry-specific guidance throughout the industry topics of the accounting standards codification, and some cost guidance related to construction-type and production-type contracts. ASU 2014-09 is effective for public entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which deferred the effective date of ASU 2014-09 for one year. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. In 2016, ASU 2016-08, ASU 2016-10 and 2016-12, were issued which amends certain aspects of ASU 2014-09. The Company is currently evaluating the potential impact of adopting this guidance, but due to the nature of its operations does not believe that it will have a significant impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which supersedes the existing guidance for lease accounting,
Leases (Topic 840)
. ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases. Lessor accounting remains largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-04,
Recognition of Breakage for Certain Prepaid Stored-Value Products,
which amends existing guidance on extinguishing financial liabilities for certain prepaid stored-value products. ASU 2016-04 requires a company to derecognize the amount related to the expected breakage in proportion to the pattern of rights expected to be exercised by the product holder to the extent that it is probable that a significant reversal of the recognized breakage amount will not subsequently occur. This ASU is effective for annual periods, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company does not believe that this guidance will have a significant impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation
, which is intended to simplify several aspects of the accounting for share-based payment transactions, including accounting for income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows. The ASU is effective for fiscal years beginning on or after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company does not believe that this guidance will have a significant impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
, which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The amendments in ASC 230 add or clarify guidance cash flow guidance related to debt prepayments or debt extinguishment costs, zero-coupon debt instruments, contingent consideration payments, proceeds from the settlement of
insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and the application of the predominance principle. This ASU is effective for annual periods beginning after December 31, 2017, including interim periods within those fiscal years. Early adoption is permitted. ASU 2016-15 requires that companies apply the guidance retrospectively to all periods presented, if practicable. The Company does not believe that this guidance will have a significant impact on its consolidated financial statements.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 2—IMPAIRMENT OF LONG-LIVED ASSETS
For the
three and nine
months ended
September 30, 2016
, impairment charges aggregated to $
409
and $
2,669
, respectively. For the
three and nine
months ended
September 30, 2015
, impairment charges aggregated to $
1,388
and $
3,258
, respectively. The impairment charges for the three months ended
September 30, 2016
were primarily the result of the continued deterioration of previously impaired theatres. The impairment charges for the three months ended September 30, 2015 were primarily the result of deterioration in the operating results of the impaired theatres and the continued deterioration of previously impaired theatres. The impairment charges for the three and nine months ended September 30, 2016 and 2015 were primarily the result of deterioration in the operating results of the impaired theatres, a decline in the market value of a previously closed theatre and the continued deterioration of previously impaired theatres.
The estimated aggregate fair value of the long-lived assets impaired during the
three and nine
months ended
September 30, 2016
was approximately $
1,486
and $
5,811
, respectively. These fair value estimates are considered Level 3 estimates within the fair value hierarchy prescribed by ASC 820,
Fair Value Measurements
, and were derived primarily from discounting estimated future cash flows. Future cash flows for a particular theatre are based on historical cash flows for that theatre, after giving effect to future attendance fluctuations, and are projected through the remainder of its lease term or useful life. The Company projects future attendance fluctuations of
(10)%
to
10%
. The risk-adjusted rate of return used to discount these cash flows ranges from
10%
to
15%
.
NOTE 3—DEBT
The Company’s debt consisted of the following on the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Senior secured notes
|
|
$
|
230,000
|
|
|
$
|
230,000
|
|
Revolving credit facility
|
|
—
|
|
|
—
|
|
Unamortized debt issuance costs
|
|
(5,934
|
)
|
|
(6,594
|
)
|
Total debt
|
|
224,066
|
|
|
223,406
|
|
Current maturities
|
|
—
|
|
|
—
|
|
Total long-term debt
|
|
$
|
224,066
|
|
|
$
|
223,406
|
|
6.00%
Senior Secured Notes
In June 2015, the Company issued
$230,000
aggregate principal amount of
6.00%
Senior Secured Notes due
June 15, 2023
(the “Senior Secured Notes”). The proceeds were used to repay the Company’s
$210,000
senior secured notes that were due in May 2019. Interest is payable on the Senior Secured Notes on
June 15 and December 15 of each year
beginning December 15, 2015.
The Senior Secured Notes are fully and unconditionally guaranteed by each of the Company’s existing subsidiaries and will be guaranteed by any future domestic wholly-owned restricted subsidiaries of the Company. Debt issuance costs and other transaction fees of approximately $
7,000
were recorded as a reduction to the associated long-term debt and are amortized over the life of the debt as interest expense. The Senior Secured Notes are secured, subject to certain permitted liens, on a second priority basis by substantially all of the Company’s and the guarantors’ current and future property and assets (including the capital stock of the Company’s current subsidiaries), other than certain excluded assets.
At any time prior to
June 15, 2018
, the Company may redeem up to
40%
of the aggregate principal amount of the Senior Secured Notes with the proceeds of certain equity offerings at a redemption price equal to
106%
of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest to, but excluding the redemption date; provided, however, that at least
60%
of the aggregate principal amount of the Senior Secured Notes are outstanding immediately following the redemption. In
addition, at any time prior to
June 15, 2018
, the Company may redeem all or a portion of the Senior Secured Notes by paying a “make-whole” premium calculated as described in the indenture governing the Senior Secured Notes (the “Indenture”). The Company has not separated the make-whole premium from the underlying debt instrument to account for it as a derivative instrument as the economic characteristics and risks of this embedded derivative are clearly and closely related to the economic characteristics of the underlying debt.
At any time on or after
June 15, 2018
, the Company may redeem all or a portion of the Senior Secured Notes at redemption prices calculated based on a percentage of the principal amount of the Senior Secured Notes being redeemed, plus accrued and unpaid interest, if any, to the redemption date, depending on the date on which the Senior Secured Notes are redeemed. These percentages range from between
100.00%
and
104.50%
.
Following a change of control, as defined in the Indenture, the Company will be required to make an offer to repurchase all or any portion of the Senior Secured Notes at a purchase price of
101%
of the principal amount, plus accrued and unpaid interest to, but excluding, the date of repurchase. On March 23, 2016, the Company entered into a supplemental indenture to the Indenture providing that the AMC merger described in response to Note 11- Acquisitions below would not constitute a change of control under the Indenture that would require us to make an offer to repurchase the Senior Secured Notes outstanding.
The fair value of the Senior Secured Notes at
September 30, 2016
and
December 31, 2015
, which are considered Level 2 estimates within the fair value hierarchy prescribed by ASC 820,
Fair Value Measurements
, is estimated based on quoted market prices as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
Carrying amount, net
|
|
$
|
230,000
|
|
|
$
|
230,000
|
|
Fair value
|
|
$
|
239,200
|
|
|
$
|
234,600
|
|
Revolving Credit Facility
In June 2015, the Company also entered into a new
$50,000
revolving credit facility (the “Credit Facility”) with an interest rate at the Company's election of (i) LIBOR plus a margin of
2.75%
or (ii) a base rate calculated under the terms of the Credit Facility plus a margin of
1.75%
. In addition, the Company is required to pay commitment fees on the unused portion of the Credit Facility at the rate of
0.50%
per annum. The termination date of the Credit Facility is
June 17, 2020
. The
$50,000
revolving credit facility replaced the prior
$25,000
revolving credit facility that was scheduled to mature in April 2016. Debt issuance costs and other transaction fees of approximately
$1,900
related to the Credit Facility were included in other non-current assets and are amortized over the life of the debt as interest expense.
The Credit Facility includes a sub-facility for the issuance of letters of credit totaling up to
$10,000
. The Company’s obligations under the Credit Facility are guaranteed by certain of the Company’s existing and future direct and indirect wholly-owned domestic subsidiaries, and the obligations of the Company and such guarantors in respect of the Credit Facility are secured by first priority liens on substantially all of the Company’s and such subsidiaries’ current and future property and assets, other than certain excluded assets, pursuant to the first lien guarantee and collateral agreement by and among the Company, such guarantors and Wells Fargo Bank, National Association, as collateral trustee. In addition, the Credit Facility contains provisions to accommodate the incurrence of up to
$150,000
in future incremental borrowings. While the Credit Facility does not contain any commitment by the lenders to provide this incremental indebtedness, the Credit Facility describes how such debt (if provided by the Company’s existing or new lenders) would be subject to various financial and other covenant compliance requirements and conditions at the time the additional debt is incurred. There was
no
outstanding balance on the revolving Credit Facility at
September 30, 2016
.
Debt Covenants
The Indenture and the Credit Facility include covenants which, among other things, limit the Company’s and its subsidiaries’ ability, to:
|
|
•
|
incur additional indebtedness or guarantee obligations;
|
|
|
•
|
issue certain preferred stock or redeemable stock;
|
|
|
•
|
pay dividends beyond certain calculated thresholds, repurchase or make distributions in respect of the Company’s capital stock or make other restricted payments;
|
|
|
•
|
make certain investments;
|
|
|
•
|
sell, transfer or otherwise convey certain assets;
|
|
|
•
|
create or incur liens or other encumbrances;
|
|
|
•
|
prepay, redeem or repurchase subordinated debt prior to stated maturities;
|
|
|
•
|
designate the Company’s subsidiaries as unrestricted subsidiaries;
|
|
|
•
|
consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets;
|
|
|
•
|
enter into a new or different line of business; and
|
|
|
•
|
enter into certain transactions with the Company’s affiliates.
|
As of
September 30, 2016
, none of the Company’s accumulated deficit was subject to restrictions limiting the payment of dividends, and the total amount available for dividend payments under the Company’s most restrictive covenants was approximately $
186,000
.
The restrictive covenants are subject to a number of important exceptions and qualifications set forth in the Indenture and the Credit Facility.
The Indenture provides for customary events of default. If any event of default occurs and is continuing, subject to certain exceptions, the trustee or the holders of at least
25%
in aggregate principal amount of the then outstanding Senior Secured Notes may declare all the Senior Secured Notes to be due and payable immediately, together with any accrued and unpaid interest, if any, to the acceleration date. In the case of an event of default resulting from certain events of bankruptcy, insolvency or reorganization, such amounts with respect to the Senior Secured Notes will be due and payable immediately without any declaration or other act on the part of the trustee or the holders of the Senior Secured Notes.
The Credit Facility contains further limitations on the Company’s ability to incur additional indebtedness and liens. In addition, to the extent the Company incurs certain specified levels of additional indebtedness, further limitations under the Credit Facility will become applicable under covenants related to sales of assets, sale-leaseback transactions, investment transactions, and the payment of dividends and other restricted payments. If the Company draws on the Credit Facility, the Company will be required to maintain a first lien leverage ratio as defined (the “Leverage Ratio”) not more than
3.00
to
1.00
. The Credit Facility also contains certain representations and warranties, other affirmative and negative covenants, and events of default customary for secured revolving credit facilities of this type.
The Company’s failure to comply with any of these covenants, including compliance with the Leverage Ratio, will be an event of default under the Credit Facility, in which case the administrative agent may, with the consent or at the request of lenders holding a majority of the commitments and outstanding loans, terminate the Credit Facility and declare all or any portion of the obligations under the Credit Facility due and payable. Other events of default under the Credit Facility include:
|
|
•
|
the Company’s failure to pay principal on the loans when due and payable, or its failure to pay interest on the loans or to pay certain fees and expenses (subject to applicable grace periods);
|
|
|
•
|
the occurrence of a change of control (as defined in the Credit Facility);
|
|
|
•
|
a breach or default by the Company or its subsidiaries on the payment of principal of any other indebtedness in an aggregate amount greater than
$10,000
;
|
|
|
•
|
breach of representations or warranties in any material respect;
|
|
|
•
|
failure to perform other obligations under the Credit Facility and the security documents for the Credit Facility (subject to applicable cure periods); or
|
|
|
•
|
certain bankruptcy or insolvency events.
|
In the event of a bankruptcy or insolvency event of default, the Credit Facility will automatically terminate, and all obligations thereunder will immediately become due and payable.
As of
September 30, 2016
, the Company was in compliance with all of the financial covenants in its Indenture and Credit Facility.
NOTE 4—INCOME TAXES
The Company’s effective income tax rate is based on expected income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year’s taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in
a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating the tax positions.
The effective tax rate from continuing operations for the
three months ended September 30, 2016
and
2015
was
42.6%
and
26.1%
, respectively. The effective tax rate from continuing operations for the
nine months ended September 30, 2016
and
2015
was
38.7%
and
30.6%
, respectively. The Company’s tax rate for the
three and nine
months ended
September 30, 2016
differs from the statutory federal tax rate primarily due to state income taxes, permanently nondeductible expenses and the effect of a change in state tax rates on its deferred tax asset. The Company's tax rate for the three and nine months ended September 30, 2015 differs from the statutory federal tax rate primarily due to state income taxes and permanently nondeductible expenses.
The Company experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended (the “IRC”), during the fourth quarter of 2008. The ownership change has and will continue to subject the Company’s pre-ownership change net operating loss carryforwards to an annual limitation, which will significantly restrict its ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of the Company’s stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.
As a result of the 2008 ownership change, the Company is subject to an approximate
$1.7 million
annual limitation on its ability to utilize its pre-change NOLs and recognized built-in losses. The Company’s acquisition of Digital Cinema Destination Corp. ("Digiplex") and Sundance Cinemas
®
(“Sundance”) (see Note 11—Acquisitions) triggered an ownership change for Digiplex and Sundance during the third quarter of 2014 and fourth quarter of 2015, respectively. The Company evaluated the impact of these ownership changes and determined at the acquisition date that both companies had net unrealized built-in gains (“NUBIG”). The NUBIG was determined based on the difference between the fair market value of the Company's assets and their tax basis as of the ownership change date. Because a NUBIG existed with regard to each of these acquisitions, items of income existing before the ownership change date that are recognized during the
five
-year period beginning on the date of ownership change serve to increase the annual limitation of losses the Company can utilize under IRC Section 382. Therefore, the Company does not believe that the ownership changes will significantly limit its ability to utilize net operating losses acquired from Digiplex or Sundance.
The Company has incurred transaction costs during the nine months ended September 30, 2016 related to the pending AMC merger (see Note 11—Acquisitions). Should the AMC merger be completed during the fourth quarter of 2016, certain of these costs will become permanently non-deductible. If the AMC merger were to fail during the fourth quarter of 2016, certain of these costs would be deductible for income tax purposes.
At
September 30, 2016
and
December 31, 2015
, the Company’s total deferred tax assets, net of both deferred tax liabilities and IRC Section 382 limitations, were
$107,293
and
$106,300
, respectively. As of each reporting date, the Company assesses whether it is more likely than not that its deferred tax assets will be recovered from future taxable income, taking into account such factors as earnings history, taxable income in the carryback period, reversing temporary differences, projections of future taxable income, the finite lives of certain deferred tax assets and the impact of IRC Section 382 limitations. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. When sufficient evidence exists that indicates that recovery is not more likely than not, a valuation allowance is established against the deferred tax assets, increasing the Company’s income tax expense in the period that such conclusion is made.
Management’s estimate of future taxable income is based on internal projections which consider historical performance, various internal estimates and assumptions, as well as certain external data, all of which management believes to be reasonable although inherently subject to significant judgment. If actual results differ significantly from the current estimates of future taxable income, and all prudent and feasible tax planning strategies are exhausted, a valuation allowance may need to be established for some or all of the Company's deferred tax assets. Establishing an allowance on the Company's net deferred tax assets could have a material adverse effect on the Company's financial condition and results of operations.
Management’s conclusion at September 30, 2016 that it is more likely than not that the Company's net deferred tax assets will be realized is partially based upon management’s estimate of future taxable income; however, the Company believes, with regard to certain state net operating losses which have a carryforward period shorter than the federal net operating loss carryforward period, that it is more likely than not that these state net operating losses will expire unused. Therefore a valuation allowance against certain state net operating loss carryforwards of
$860
was established during the fourth quarter of 2015.
Management’s judgment regarding the realizability of state net operating loss deferred tax assets may change due to further changes in state tax rates, apportionment, and business concentration.
As of
September 30, 2016
and
December 31, 2015
, the amount of unrecognized tax benefits was
$127
and
$167
, all of which would affect the Company’s annual effective tax rate, if recognized.
NOTE 5—EQUITY BASED COMPENSATION
In May 2014, the Board of Directors adopted the Carmike Cinemas, Inc. 2014 Incentive Stock Plan (the “2014 Incentive Stock Plan”). The Company’s Compensation and Nominating Committee may grant stock options, stock grants, stock units, and stock appreciation rights under the 2014 Incentive Stock Plan to certain eligible employees and to outside directors. As of
September 30, 2016
, there were
1,037,571
shares available for future grants under the 2014 Incentive Stock Plan. The Company’s policy is to issue new shares upon exercise of options and the issuance of stock grants.
The Company also issues restricted stock awards to certain key employees and directors. Generally, the restricted stock vests over a
one
to
three
year period and compensation expense is recognized over the
one
to
three
year period equal to the grant date fair value of the shares awarded. For certain employees who have met retirement eligibility criteria as defined in the respective award agreements, compensation expense for restricted stock awards is recognized immediately. As of
September 30, 2016
, the Company also had
155,305
shares of performance-based awards outstanding which are dependent on the achievement of EBITDA targets that vest over a
three
-year period. As of
September 30, 2016
,
76,502
shares of these performance-based stock awards have been earned due to the achievement of EBITDA targets. Performance-based stock awards are recognized as compensation expense over the vesting period based on the fair value on the date of grant and the number of shares ultimately expected to vest. For those employees who have met retirement eligibility criteria as defined in the 2014 Incentive Stock Plan, compensation expense for performance-based stock awards is recognized immediately once all conditions of the award have been satisfied. The Company has determined the achievement of the performance target for the unearned awards in the current year is probable.
The Company’s total stock-based compensation expense was approximately
$704
and
$1,198
for the three months ended
September 30, 2016
and
2015
, respectively, and $
3,105
and $
5,057
for the
nine months ended September 30, 2016
and
2015
, respectively. Stock-based compensation expense is included in general and administrative expenses in the consolidated statement of operations. As of
September 30, 2016
, the Company had approximately
$2,229
of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s plans. This cost is expected to be recognized as stock-based compensation expense over a weighted-average period of approximately
1.3
years. This expected cost does not include the impact of any future stock-based compensation awards.
Options—Service Condition Vesting
The Company currently uses the Black-Scholes option pricing model to determine the fair value of its stock options for which vesting is dependent only on employees providing future service. Such stock options vest equally over a
three
-year period, except for options granted to members of the Board of Directors that vest immediately upon issuance. The stock options expire
10
years after the grant date. The Company’s stock-based compensation expense is recorded based on an estimated forfeiture rate of
5%
.
No
options were granted during the first
nine
months of
2016
or
2015
. The following table sets forth the summary of option activity for stock options with service vesting conditions as of
September 30, 2016
:
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life (Yrs.)
|
|
Aggregate
Intrinsic
Value
|
Outstanding at January 1, 2016
|
|
550,000
|
|
|
$
|
8.67
|
|
|
4.1
|
|
|
$
|
7,848
|
|
Granted
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expired
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at September 30, 2016
|
|
550,000
|
|
|
$
|
8.67
|
|
|
3.4
|
|
|
$
|
13,211
|
|
Exercisable on September 30, 2016
|
|
550,000
|
|
|
$
|
8.67
|
|
|
3.4
|
|
|
$
|
13,211
|
|
Expected to vest September 30, 2016
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Options – Market Condition Vesting
In April 2007, the Compensation and Nominating Committee approved (pursuant to the 2004 Incentive Stock Plan) the grant of an aggregate of
260,000
stock options, at an exercise price equal to
$25.95
per share, to a group of
eight
senior executives. The April 2007 stock option grants are aligned with market performance, as one-third of these stock options each will vest when the Company achieves an increase in the trading price of its common stock (over the
$25.95
exercise price) equal to
25%
,
30%
and
35%
, respectively. The Company determined the aggregate grant date fair value of these stock options to be approximately
$1,430
. The fair value of these options was estimated on the date of grant using a Monte Carlo simulation model. Compensation expense is not subsequently adjusted for the number of shares that are ultimately vested.
The following table sets forth the summary of option activity for the Company’s stock options with market condition vesting for the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
Outstanding at January 1, 2016
|
|
73,334
|
|
|
$
|
25.95
|
|
|
1.3
|
|
|
$
|
—
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Outstanding at September 30, 2016
|
|
73,334
|
|
|
$
|
25.95
|
|
|
0.5
|
|
|
$
|
494
|
|
Exercisable on September 30, 2016
|
|
40,000
|
|
|
$
|
25.95
|
|
|
0.5
|
|
|
$
|
270
|
|
Expected to vest September 30, 2016
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Restricted Stock
The following table sets forth the summary of activity for restricted stock grants, including performance-based awards, for the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
Nonvested at January 1, 2016
|
|
388,794
|
|
|
$
|
27.34
|
|
Granted
|
|
181,009
|
|
|
$
|
21.44
|
|
Vested
|
|
(197,150
|
)
|
|
$
|
22.72
|
|
Forfeited
|
|
(7,088
|
)
|
|
$
|
28.03
|
|
Nonvested at September 30, 2016
|
|
365,565
|
|
|
$
|
26.89
|
|
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
As of
September 30, 2016
and
December 31, 2015
, goodwill and intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Value
|
|
Accumulated
Amortization
|
|
Net
Carrying Value
|
As of September 30, 2016
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
Lease related intangibles
|
|
$
|
3,612
|
|
|
$
|
(1,584
|
)
|
|
$
|
2,028
|
|
Non-compete agreements
|
|
30
|
|
|
(25
|
)
|
|
5
|
|
Trade names
|
|
750
|
|
|
(582
|
)
|
|
168
|
|
Licenses
|
|
250
|
|
|
—
|
|
|
250
|
|
Total intangible assets
|
|
$
|
4,642
|
|
|
$
|
(2,191
|
)
|
|
$
|
2,451
|
|
As of December 31, 2015
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
Lease related intangibles
|
|
$
|
3,612
|
|
|
$
|
(1,206
|
)
|
|
$
|
2,406
|
|
Non-compete agreements
|
|
30
|
|
|
(21
|
)
|
|
9
|
|
Trade names
|
|
750
|
|
|
(569
|
)
|
|
181
|
|
Total intangible assets
|
|
$
|
4,392
|
|
|
$
|
(1,796
|
)
|
|
$
|
2,596
|
|
Amortization expense of intangible assets for fiscal years 2016 through 2020 and thereafter is estimated to be approximately
$525
,
$518
,
$495
,
$495
,
$274
and
$288
, respectively.
The following table sets forth the changes in the carrying amount of goodwill for the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Additions
|
|
Impairments
|
|
September 30, 2016
|
Goodwill, gross
|
|
$
|
189,956
|
|
|
$
|
1,833
|
|
|
$
|
—
|
|
|
$
|
191,789
|
|
Accumulated impairment losses
|
|
(38,240
|
)
|
|
—
|
|
|
—
|
|
|
(38,240
|
)
|
Total goodwill, net
|
|
$
|
151,716
|
|
|
$
|
1,833
|
|
|
$
|
—
|
|
|
$
|
153,549
|
|
NOTE 7—COMMITMENTS AND CONTINGENCIES
Contingencies
The Company, in the normal course of business, is involved in routine litigation and legal proceedings, such as personal injury claims, employment matters, contractual disputes and claims alleging Americans with Disabilities Act violations. Currently, there is no pending litigation or proceedings that the Company believes will have a material adverse effect, either individually or in the aggregate, on its business or its financial position, results of operations or cash flow.
Shareholder Litigation
On April 25, 2016 and May 10, 2016,
two
putative class action complaints were filed in the United States District Court for the Middle District of Georgia, Columbus Division (the "Court"), against Carmike’s directors, AMC, and Merger Sub arising from the merger: Solak v. Passman, et al., C.A. No. 4:16-cv-154 (CDL) (“Solak Action”) and Baskette v. Fleming, et al., C.A. No. 4:16-cv-170 (CDL) (“Baskette Action” and, together with the Solak Action, the “Actions”). The plaintiffs in the Actions, certain purported holders of Carmike’s common stock (which we refer to as “Plaintiffs”), allege that the preliminary proxy statement filed by Carmike on March 31, 2016 with the SEC in connection with the merger contained false and misleading statements and omitted material information in violation of Section 14(a) of the Exchange Act and SEC Rule 14a-9 promulgated thereunder, and further that the director defendants are personally liable for those alleged misstatements and omissions under Section 20(a) of the Exchange Act. Plaintiffs also allege that the director defendants breached their fiduciary duties owed to the public stockholders of Carmike in connection with the merger and that AMC and Merger Sub aided and abetted those breaches. The Actions seek, among other things, to enjoin the merger until the alleged Exchange Act violations and breaches of fiduciary duties are remedied, to rescind the merger agreement or any terms thereof to the extent such agreement or terms have already been implemented, and an award of attorneys’ and experts’ fees and costs. In addition, the Baskette Action seeks an accounting and award of damages.
On June 10, 2016, the Court consoldiated the Actions into a single action: In re Carmike Cinemas, Inc. Shareholder Litigation, Consolidated C.A. No. 4:16-cv-154 (CDL) (the “Consolidated Action”). On June 14, 2016, the Court denied Plaintiffs' request for an order temporarily restraining the merger and for expedited discovery in support of a motion to preliminarily enjoin the merger. Following that ruling, all proceedings in the Consolidated Action were temporarily stayed pending the close of the merger. Although it is not possible to predict the outcome of litigation matters with certainty, Carmike believes that the claims raised in the Consolidated Action are without merit and intends to defend against them vigorously.
NOTE 8—NET LOSS PER SHARE
Basic net loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted income per share is computed using the weighted-average number of common shares and common stock equivalents outstanding. As a result of the Company's net losses for the three and nine months ended
September 30, 2016
all common stock equivalents aggregating
390,224
and
406,421
, respectively, were excluded from the calculation of dilutive loss per share given their anti-dilutive effect. As a result of the Company's net losses for the three and nine months ended
September 30, 2015
, all common stock equivalents aggregating
387,635
and
418,489
, respectively, were excluded from the calculation of dilutive loss per share given their anti-dilutive effect.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,419
|
)
|
|
$
|
(6,257
|
)
|
|
$
|
(791
|
)
|
|
$
|
(7,311
|
)
|
Denominator (shares in thousands):
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
24,600
|
|
|
24,577
|
|
|
24,589
|
|
|
24,499
|
|
Less: restricted stock issued
|
|
—
|
|
|
(67
|
)
|
|
(11
|
)
|
|
(105
|
)
|
Denominator for basic earnings per share:
|
|
24,600
|
|
|
24,510
|
|
|
24,578
|
|
|
24,394
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
Stock options
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock awards
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dilutive potential common shares
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares
|
|
24,600
|
|
|
24,510
|
|
|
24,578
|
|
|
24,394
|
|
Basic and Diluted loss per share attributable to Carmike stockholders
|
|
$
|
(0.06
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.30
|
)
|
NOTE 9—SCREENVISION EXHIBITION, INC.
On October 14, 2010, the Company finalized the modification of its long-term exhibition agreement (the “Modified Exhibition Agreement”) with Screenvision Exhibition, Inc. (“Screenvision”), the Company’s exclusive provider of on-screen advertising services. The Modified Exhibition Agreement extends the Company’s exhibition agreement with Screenvision, which was set to expire on
July 1, 2012
, for an additional
30
year term through
July 1, 2042
(“Expiration Date”).
In connection with the Modified Exhibition Agreement, the Company received a cash payment of
$30,000
from Screenvision in January 2011. In addition, on October 14, 2010, the Company received, for no additional consideration, Class C membership units representing, as of that date, approximately
20%
of the issued and outstanding membership units of SV Holdco, LLC (“SV Holdco”). SV Holdco is a holding company that owns and operates the Screenvision business through a subsidiary entity. SV Holdco has elected to be taxed as a partnership for U.S. federal income tax purposes.
In September 2011, the Company made a voluntary capital contribution of
$718
to SV Holdco. The capital contribution was made to maintain the Company’s relative ownership interest following an acquisition by Screenvision and additional capital contributions by other owners of SV Holdco. The Company received Class A membership units representing less than
1%
of the issued and outstanding membership units of SV Holdco in return for the Company’s capital contribution.
In May 2016, the Company added certain previously acquired screens to its Modified Exhibition Agreement. The screens were brought under the Modified Exhibition Agreement following the expiration of their previous screen advertising agreement. Pursuant to the terms of the Modified Exhibition Agreement, the Company received a cash payment of
$2,047
from SV Holdco which has been deferred and will be recognized as concessions and other revenue on a straight line basis over the remaining term of the Modified Exhibition Agreement.
In August 2016, SV Holdco LLC redeemed, and subsequently retired, certain Class A units from a member of SV Holdco. The redemption did not affect the Company's Class A and Class C membership units. However, as a result of the redemption, the Company's non-forfeitable Class C and Class A membership units increased from approximately
14%
of the total issued and outstanding membership units of SV Holdco to approximately
19%
. The Company’s non-forfeitable Class C and Class A membership units represented approximately
19%
and
14%
of the total issued and outstanding membership units of SV Holdco as of
September 30, 2016
and
December 31, 2015
, respectively.
As of
September 30, 2016
, the carrying value of the Company’s ownership interest in SV Holdco is
$8,494
and is included in investments in unconsolidated affiliates in the consolidated balance sheets. For book purposes, the Company has accounted for its investment in SV Holdco, LLC, a limited liability company for which separate accounts of each investor are maintained, as an equity method investment pursuant to ASC 970-323-25-6.
The Company’s Class C membership units are intended to be treated as a “profits interest” in SV Holdco for U.S. federal income tax purposes and thus do not give the Company an interest in the other members’ initial or subsequent capital contributions. As a profits interest, the Company’s Class C membership units are designed to represent an equity interest in SV Holdco’s future profits and appreciation in assets beyond a defined threshold amount, which equaled
$85,000
as of October 14, 2010. The
$85,000
threshold amount represented the agreed upon value of initial capital contributions made by the members to SV Holdco and is subject to adjustment to account for future capital contributions made to SV Holdco. Accordingly, the threshold amount applicable to the Company’s Class C membership units equaled
$88,000
as of
September 30, 2016
.
The Company will also receive additional Class C membership units (“bonus units”), all of which will be subject to forfeiture, or may forfeit some of its initial Class C membership units, based upon changes in the Company’s future theatre and screen count. However, the Company will not forfeit more than
25%
of the Class C membership units it received in October 2010, and the Company will not receive bonus units in excess of
33%
of the Class C membership units it received in October 2010. Any bonus units and the initial Class C membership units subject to forfeiture will each become non-forfeitable on the Expiration Date, or upon the earlier occurrence of certain events, including (1) a change of control or liquidation of SV Holdco or (2)the consummation of an initial public offering of securities of SV Holdco. The Company’s Class C units in SV Holdco LLC that are subject to forfeiture, and any bonus units that may be awarded in future periods, will not be recognized in its consolidated financial statements until such units become non-forfeitable. Upon recognition, the Company will record its investment in any additional Class C and bonus units and will recognize revenue equal to the then estimated fair value of such units. The non-forfeitable ownership interest in SV Holdco was recorded at an estimated fair value of
$6,555
which was determined using the Black Scholes Model. The Company has applied the equity method of accounting for the non-forfeitable units and for financial reporting purposes began recording the related percentage of the earnings or losses of SV Holdco in its consolidated statement of operations since October 14, 2010.
For financial reporting purposes, the gains from both the
$30,000
cash payment to the Company and its non-forfeitable membership units in SV Holdco (
$36,555
in the aggregate) have been deferred and will be recognized as concessions and other revenue on a straight line basis over the remaining term of the Modified Exhibition Agreement. The Company has included in concessions and other revenue in the consolidated statement of operations amounts related to Screenvision of approximately
$3,100
and
$2,602
for the
three months ended September 30, 2016
and
2015
, respectively and approximately
$8,338
and
$8,003
for the
nine months ended September 30, 2016
and
2015
, respectively. The Company reclassifies certain amounts from Screenvision included in concessions and other revenue to earnings from unconsolidated affiliates. The amount reclassified is based on the Company’s non-forfeitable ownership percentage of SV Holdco membership units, represents an intercompany gain to the Company and totaled
$547
and
$459
for the
three months ended September 30, 2016
and
2015
, respectively and $
1,471
and $
1,412
for the
nine months ended September 30, 2016
and
2015
, respectively. The Company has included in accounts receivable in the consolidated balance sheets amounts due from Screenvision of
$1,964
and
$1,626
at
September 30, 2016
and
December 31, 2015
, respectively.
A summary of changes in investments in unconsolidated affiliates and deferred revenue for the Company’s equity method investment in SV Holdco for the
nine months ended
September 30, 2016
is as follows:
|
|
|
|
|
Investments in unconsolidated affiliates
|
SV Holdco
|
Balance at January 1, 2016
|
$
|
6,957
|
|
Equity income of SV Holdco
|
1,537
|
|
Balance at September 30, 2016
|
$
|
8,494
|
|
|
|
|
|
Deferred revenue
|
SV Holdco
|
Balance at January 1, 2016
|
$
|
30,670
|
|
Theatre acquisition bonus
|
2,047
|
|
Amortization of up-front payment
|
(710
|
)
|
Amortization of Class C units
|
(185
|
)
|
Balance at September 30, 2016
|
$
|
31,822
|
|
NOTE 10—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Our investments in affiliated companies accounted for by the equity method consist of our ownership interest in Screenvision, as discussed in Note 9—Screenvision Exhibition, Inc., and interests in other joint ventures.
Combined financial information of the unconsolidated affiliated companies accounted for by the equity method is as follows:
|
|
|
|
|
|
As of September 30,
|
|
2016
|
Assets:
|
|
Current assets
|
$
|
67,711
|
|
Noncurrent assets
|
118,514
|
|
|
|
Total assets
|
$
|
186,225
|
|
|
|
Liabilities:
|
|
Current liabilities
|
$
|
39,416
|
|
Noncurrent liabilities
|
84,051
|
|
|
|
Total liabilities
|
$
|
123,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30, 2016
|
|
September 30, 2015
|
Results of operations:
|
|
|
|
|
Revenue
|
|
$
|
58,300
|
|
|
$
|
41,252
|
|
Operating income (loss)
|
|
$
|
11,552
|
|
|
$
|
(3,505
|
)
|
Income from continuing operations
|
|
$
|
6,710
|
|
|
$
|
2,694
|
|
Net income
|
|
$
|
6,710
|
|
|
$
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30, 2016
|
|
September 30, 2015
|
Results of operations:
|
|
|
|
|
Revenue
|
|
$
|
148,063
|
|
|
$
|
104,777
|
|
Operating income (loss)
|
|
$
|
15,356
|
|
|
$
|
(10,134
|
)
|
Income from continuing operations
|
|
$
|
8,802
|
|
|
$
|
9,087
|
|
Net income
|
|
$
|
8,802
|
|
|
$
|
9,087
|
|
A summary of activity in income from unconsolidated affiliates for the
nine months ended September 30, 2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
Income from unconsolidated affiliates
|
|
2016
|
|
2015
|
Income from unconsolidated affiliates
|
|
$
|
1,887
|
|
|
$
|
1,551
|
|
Elimination of intercompany revenue
|
|
1,471
|
|
|
1,412
|
|
Income from unconsolidated affiliates
|
|
$
|
3,358
|
|
|
$
|
2,963
|
|
NOTE 11— ACQUISITIONS
AMC Merger
On March 3, 2016, AMC Entertainment Holdings, Inc. ("AMC") and the Company announced that the companies had entered into a definitive merger agreement under which AMC would acquire all of the outstanding shares of the Company and the Company would become a wholly owned subsidiary of AMC. Under the terms of the original merger agreement, Company stockholders would have received, for each share held by such stockholder,
$30.00
in cash at closing.
On July 25, 2016, AMC and the Company announced that they had entered into an amended and restated merger agreement which provides that, at the effective time of the merger, each share of Company common stock issued and outstanding immediately prior to closing will be converted, at the election of the Company stockholder, into the right to receive (i)
$33.06
in cash, without interest or (ii)
1.0819
shares of AMC Class A common stock. Pursuant to the amended and restated merger agreement, after the elections are made, the final per share merger consideration to be delivered to Company stockholders is subject to proration so that
70%
of the total shares held by all Company stockholders are converted into cash and
30%
of the total shares held by all Carmike stockholders are converted into shares of AMC Class A common stock.
The amended and restated merger agreement includes representations, warranties and conditions, including breakup fees payable or receivable by the Company under certain conditions if the transaction fails to close. The completion of the AMC merger is subject to customary closing conditions including, among others, the approval of Company stockholders and receipt of regulatory approvals.
The amended and restated merger agreement contains certain termination rights for both the Company and AMC and further provides that upon the termination of the amended and restated merger agreement under certain circumstances, including upon a termination as a result of a superior proposal, the Company will be required to pay a breakup fee of
$30,000
. AMC is required to pay Carmike a termination fee of
$50,000
if the amended and restated merger agreement is terminated in certain circumstances relating to the antitrust regulatory review process. In addition, either AMC or the Company may terminate the amended and restated merger agreement prior to the effective time if the AMC merger has not been consummated on or before December 5, 2016 (the "end date"), provided, that if all of the closing conditions except those related to certain competition laws or legal restraints have been satisfied or are capable of being satisfied, then either AMC or the Company may extend the end date an additional 90 days upon written notice before the end date.
Refer to the definitive proxy statement filed by the Company with the U.S. Securities and Exchange Commission (the "SEC") on October 11, 2016 for additional information on the AMC merger.
AMC/Starplex
In January 2016, the Company acquired
two
theatres and
22
screens from a subsidiary of AMC for approximately
$5,465 thousand
, inclusive of working capital adjustments. The acquisition supports the Company's growth strategy. Acquisition costs related to this transaction were not significant to the Company's consolidated financial statements. The purchase price of
$5,465
was allocated as follows:
|
|
|
|
|
Purchase price, net of cash received
|
$
|
5,390
|
|
Working capital adjustment
|
75
|
|
Total purchase price
|
$
|
5,465
|
|
|
|
Other current assets
|
75
|
|
Property and equipment
|
3,557
|
|
Net assets acquired
|
3,632
|
|
Goodwill
|
1,833
|
|
|
|
Purchase Price
|
$
|
5,465
|
|
Sundance
On October 6, 2015, the Company completed its acquisition of
five
theatres and
37
screens pursuant to the terms of a definitive purchase agreement under which Carmike acquired all of Sundance Cinemas, LLC ("Sundance"). In consideration for the acquisition, the Company paid
$35,843
in cash, including
$130
in working capital adjustments. The purchase price was paid using cash on hand. The acquisition of Sundance supports the Company's growth strategy.
The following table summarizes the purchase price and purchase price allocation for Sundance based on the fair value of the net assets acquired at the acquisition date.
|
|
|
|
|
Purchase price, net of cash received
|
$
|
35,713
|
|
Working capital adjustment
|
130
|
|
|
|
Total purchase price
|
$
|
35,843
|
|
|
|
Accounts receivable
|
$
|
156
|
|
Inventory
|
173
|
|
Other current assets
|
511
|
|
Property and equipment
|
10,022
|
|
Intangible assets
|
200
|
|
Other assets
|
464
|
|
Deferred tax assets
|
1,444
|
|
Accounts payable
|
(870
|
)
|
Accrued expenses
|
(852
|
)
|
Other liabilities
|
(520
|
)
|
|
|
Net assets acquired
|
10,728
|
|
Goodwill
|
25,115
|
|
|
|
Purchase Price
|
$
|
35,843
|
|
The total non-cash consideration representing liabilities assumed in the Sundance transaction was
$2,242
.
The fair value of the current assets and current liabilities acquired approximate their net book value at the acquisition date. The goodwill recognized of
$25,115
is attributable primarily to expected synergies of achieving cost reductions and eliminating redundant administrative functions. The majority of the goodwill is not expected to be deductible for income tax purposes. Identified intangible assets recognized of
$200
represent favorable lease obligations and will be amortized to depreciation and amortization expense in the consolidated statements of operations over the respective lease term. The Company also recognized unfavorable lease obligations of
$520
which will be amortized to theatre occupancy costs in the consolidated
statements of operations over the respective lease term. The weighted-average useful life of the favorable lease obligation, prior to the exercise of any extension or renewals associated with the underlying lease is
5.0
years.
The results of Sundance's operations have been included in the consolidated financial statements since the date of acquisition. Revenue and net income of Sundance included in the Company's operating results for the year ended December 31, 2015 from the acquisition date are
$7,394
and
$668
, respectively. Acquisition costs related to professional fees incurred as a result of the Sundance acquisition, during the year ended December 31, 2015 were approximately
$300
and were expensed as incurred and included in general and administrative expenses in the consolidated statement of operations. The majority of these expenses are not deductible for income tax purposes.
NOTE 12— LEASE AMENDMENT
In February 2016, the Company amended a master lease agreement consisting of
five
theatres and
84
screens. The amendment extends the term of the master lease agreement for
15
years, exclusive of any option periods. The Company expects to incur capital expenditures totaling approximately
$28,000
to remodel certain of these theatres of which
$15,000
will be reimbursed by the landlord. Certain of the improvements were deemed to be non-normal tenant improvements and the Company has recorded capital lease and financing obligations of
$14,285
on its consolidated balance sheet.