AMC Theatres Reports "Going Concern" Doubt, Will Post Loss of Up to $2.4B on Impairment Charge

Adam Aron 2018 Will Rogers Dinner - Getty - H 2019
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The exhibition giant, controlled by Chinese conglomerate Dalian Wanda Group, is led by CEO Adam Aron.

Cinema giant AMC Theatres disclosed Wednesday that it expects its first-quarter financials, which were during the second half of March hit by the shutdown of its circuit, to include a loss of up to $2.4 billion, driven by a big impairment charge amid the novel coronavirus pandemic. 

The company also said there was "substantial doubt" about its ability to "continue as a going concern for a reasonable period of time." The "going concern" phrase is a warning that a company could eventually have to file for bankruptcy and go out of business.

Wedbush Securities analyst Michael Pachter tells THR in a first reaction that the news "shouldn't be" surprising to investors given recent Wall Street debate about the company's liquidity. "When they drew on their short-term line of credit and stopped paying rent, they said they had enough to last 'through November.'  If things don't open up by then, they will have to restructure completely."

Another Wall Street observer says the "going concern" language is not necessarily a sign of any change in confidence about a company's outlook, but is under difficult circumstances required by accounting and/or legal advisers. 

AMC Theatres also unveiled plans for a debt swap Wednesday to give it additional financial flexibility. MKM Partners analyst Eric Handler in a report headline summarized that this means that the firm's debt "restructuring plan takes a step forward."

AMC Theatres said that it would post a loss of $2.1 billion to $2.4 billion due to the charge of $1.8 billion to $2.1 billion "related to estimated long lived assets, indefinite-lived intangible assets and goodwill." 

The firm's adjusted net loss for the first quarter will come in around $224.5 million, compared to $101.8 million in the same period a year ago, the filing showed. "Adjusted net loss normalizes results for the impact of fair-value re-measurement of the derivative liability and derivative asset related to the company's convertible notes due 2024 and the impact related to the impairment of long lived assets, indefinite-lived intangible assets and goodwill."

AMC said its revenue for the first quarter fell about 22 percent to approximately $941.5 million from $1.2 billion.

AMC also addressed its liquidity. "We continue to manage proactively our cash resources to control our monthly cash spend rate. At the same time, we have begun to ramp up our cash spend with the intention of reopening theaters this summer," it said. "We believe we have the cash resources to reopen our theaters and resume our operations this summer or later. Our liquidity needs thereafter will depend, among other things, on the timing of a full resumption of operations, the timing of movie releases and our ability to generate revenues. We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because we have never previously experienced a complete cessation of our operations."

Concluded AMC: "If we do not recommence operations within our estimated timeline, we will require additional capital and may also require additional financing if, for example, our operations do not generate the expected revenues or a recurrence of COVID-19 were to cause another suspension of operations. Such additional financing may not be available on favorable terms or at all. Due to these factors, substantial doubt exists about our ability to continue as a going concern for a reasonable period of time."

The company, controlled by Chinese conglomerate Dalian Wanda Group, furloughed or let go more than 26,000 employees as the virus crisis shuttered its circuit in March. The largest cinema chain in the U.S. and the world then went even further, furloughing all of its 600 corporate employees, including CEO Adam Aron.

Exhibitors have been hit hard by the pandemic as they get no revenue but have high fixed costs. Analysts initially discussed a potential bankruptcy filing from AMC but after the company raised more funds, many ended up comfortable that wouldn't be necessary.

AMC Theatres in late April also delivered a blistering message to Universal Pictures, saying it would no longer play any of the studio's films in the wake of comments made by NBCUniversal CEO Jeff Shell regarding the on-demand success of Trolls World Tour and what it means for the future of moviegoing post-coronavirus pandemic.

"Effective immediately AMC will no longer play any Universal movies in any of our theaters in the United States, Europe or the Middle East," Aron wrote in a letter back then. "This policy affects any and all Universal movies per se, goes into effect today and as our theaters reopen, and is not some hollow or ill-considered threat."