NOTE 8 –  STOCKHOLDERS’ EQUITY

 

Common Stock Rights and Privileges

 

The rights of the holders of Holdings’ Class A common stock and Holdings’ Class B common stock are identical, except with respect to voting and conversion applicable to the Class B common stock. Holders of Holdings’ Class A common stock are entitled to one vote per share and holders of Holdings’ Class B common stock are entitled to three votes per share. Holders of Class A common stock and Class B common stock will share ratably (based on the number of shares of common stock held) in any dividend declared by its board of directors, subject to any preferential rights of any outstanding preferred stock. The Class A common stock is not convertible into any other shares of Holdings’ capital stock. Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock shall convert automatically into one share of Class A common stock upon any transfer, whether or not for value, except for certain transfers described in Holdings’ certificate of incorporation.

 

Dividends

 

The following is a summary of dividends and dividend equivalents declared to stockholders during the year ended December 31, 2016:

 

 

During the year ended December 31, 2016, the Company paid dividends and dividend equivalents of $79,627,000 and accrued $488,000 for the remaining unpaid dividends at December 31, 2016. The aggregate dividends paid for Class A common stock, Class B common stock, and dividend equivalents were approximately $18,198,000,  $60,662,000, and $767,000, respectively.

 

The following is a summary of dividends and dividend equivalents declared to stockholders during the year ended December 31, 2015:

 

 

During the year ended December 31, 2015, the Company paid dividends and dividend equivalents of $78,608,000 and accrued $165,000 for the remaining unpaid dividends at December 31, 2015. The aggregate dividends paid for Class A common stock, Class B common stock, and dividend equivalents were approximately $17,260,000,  $60,662,000, and $686,000, respectively.

 

During the year ended December 31, 2014, the Company paid dividends and dividend equivalents of $58,504,000, increased additional paid-in capital for recognition of deferred tax assets of $27,000 related to the dividend equivalents paid, and accrued $225,000 for the remaining unpaid dividends at December 31, 2014. The aggregate dividends paid for Class A common stock, Class B common stock, and dividend equivalents were approximately $12,937,000,  $45,496,000, and $71,000, respectively.

 

Related Party Transaction

 

As of December 31, 2016 and December 31, 2015, the Company recorded a receivable due from Wanda of $10,594,000 and $141,000, respectively for reimbursement of general administrative and other expense incurred on behalf of Wanda and a pledged capital contribution. In December 2016, Wanda agreed to make a capital contribution of $10,000,000 to AMC (without any increase in Wanda’s economic interest or voting rights in the Company) for payment to certain officer, directors, and other personnel for extraordinary services rendered in connection with merger and acquisition activity in 2016. This contribution was received during February 2017. Total reimbursements of other expenses from Wanda were $461,000,  $738,000 and $1,423,000 for the years ended December 31, 2016, December 31, 2015, and December 31, 2014, respectively. The Company’s majority shareholder, Wanda, owns Legendary Entertainment, a motion picture production company. The Company will occasionally play Legendary’s films in its theatres, as a result of transactions with independent film distributors.

 

Temporary Equity

 

Certain members of management have the right to require Holdings to repurchase the Class A common stock held by them under certain limited circumstances pursuant to the terms of a stockholders agreement. Beginning on January 1, 2016 and ending on January 1, 2019 (or upon the termination of a management stockholder’s employment by the Company without cause, by the management stockholder for good reason, or due to the management stockholder’s death or disability) management stockholders will have the right, in limited circumstances, to require Holdings to purchase shares that are not fully and freely tradeable at a price equal to the price per share paid by such management stockholder with appropriate adjustments for any subsequent events such as dividends, splits, or combinations. The shares of Class A common stock subject to the stockholder agreement are classified as temporary equity, apart from permanent equity, as a result of the contingent redemption feature contained in the stockholder agreement. The Company determined the amount reflected in temporary equity for the Class A common stock based on the price paid per share by the management stockholders and Wanda on August 30, 2012, the date Wanda acquired Holdings.

 

During the year ended December 31, 2016, a former employee who held 27,197 shares, relinquished his put right, therefore the related amount of $284,000 was reclassified to additional paid-in capital, a component of stockholders’ equity.

 

During the year ended December 31, 2015, a former employee who held 5,939 shares, relinquished his put right, therefore the related amount of $62,000 was reclassified to additional paid-in capital, a component of stockholders’ equity. During the year ended December 31, 2014, certain members of management received $92,000 by tendering shares of Class A common stock to Holdings with an original recorded historical cost of $43,000. As a result of this transaction, temporary equity declined by $43,000 and additional paid-in capital increased by $43,000.

 

Treasury Stock

 

Holdings used cash on hand to purchase 4,085 shares of Class A common stock for fair value of $92,000 from certain members of management during the year ended December 31, 2014.

 

Stock-Based Compensation

 

Holdings adopted a stock-based compensation plan in December of 2013.

 

The Company recorded stock-based compensation expense of $4,855,000,  $10,480,000,and $11,293,000 within general and administrative: other during the years ended December 31, 2016, December 31, 2015, and December 31, 2014, respectively. The Company’s financial statements reflect an increase to additional paid-in capital related to stock-based compensation of $4,855,000,  $10,480,000, and $11,293,000 during the years ended December 31, 2016 and December 31, 2015 and December 31, 2014, respectively. As of December 31, 2016, there was approximately $9,502,000 of total unrecognized compensation cost, assuming attainment of the performance targets at 100%, related to stock-based compensation arrangements expected to be recognized during the years ending December 31, 2017 and December 31, 2018. The Company expects to recognize compensation cost of $4,751,000 in both the years ending December 31, 2017 and December 31, 2018.

 

2013 Equity Incentive Plan

 

The 2013 Equity Incentive Plan provides for grants of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock units, stock awards, and cash performance awards. The maximum number of shares of Holdings’ common stock available for delivery pursuant to awards granted under the 2013 Equity Incentive Plan is 9,474,000 shares. At December 31, 2016, the aggregate number of shares of Holdings’ common stock available for grant was 7,739,524 shares.

 

Awards Granted in 2016, 2015, and 2014

 

AMC’s Board of Directors approved awards of stock, restricted stock units (“RSUs”), and performance stock units (“PSUs”) to certain of the Company’s employees and directors under the 2013 Equity Incentive Plan. During years 2016, 2015, and 2014, the grant date fair value of these awards was based on the closing price of AMC’s stock on the date of grant, which ranged from $20.18 to $33.96 per share.

 

The award agreements generally had the following features:

 

 

 

During the year ended December 31, 2016, RSU awards of 135,981 units were granted to certain executive officers covered by Section 162(m) of the Internal Revenue Code. The RSUs will be forfeited if AMC does not achieve a specified cash flow from operating activities target for each of the years ending December 31, 2016, 2017 and 2018. The RSUs vest over 3 years with 1/3 vesting in each of 2017, 2018 and 2019 if the cash flow from operating activities target is met. The vested RSUs will be settled within 30 days of vesting. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the RSUs began to accrue with respect to the RSUs on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the RSUs. The grant date fair value was $3,383,000 based on the probable outcome of the performance targets and a stock price of $24.88 on March 1, 2016. The Company recognized expense for these awards of $1,128,000 in general and administrative: other expense, during the year ended December 31, 2016, based on achievement of the performance condition for 2016.

 

During the years ended December 31, 2015 and December 31, 2014, RSU awards of 58,749 and 128,641 units, respectively, were granted to certain executive officers. The RSUs granted each year would have been forfeited if AMC did not achieve a specified annual cash flow from operating activities target for the calendar year. These awards did not contain a service condition. The vested RSUs will not be settled, and will be non-transferable, until the third anniversary of the date of grant. Under certain termination scenarios defined in the award agreement, the RSUs may be settled within 60 days following termination of service. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the RSUs began to accrue with respect to the RSUs on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the RSUs. Thereafter, dividend equivalents are paid to the holder whenever dividends are paid on the Class A common stock. The Company recognized expense for these awards of $1,995,000 and $2,596,000, within general and administrative: other expense, during the years ended December 31, 2015 and December 31, 2014, respectively, due to the achievement of the performance condition.

 

On August 7, 2015, a RSU award of 19,226 units was granted to the Interim Chief Executive Officer and President, with a grant date fair value of approximately $569,000. Each RSU converted into one share of Class A common stock immediately upon vesting which occurred upon the first day of employment of a replacement Chief Executive Officer, January 4, 2016. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the RSUs began to accrue with respect to the RSUs on the date of grant. Such accrued dividend equivalents were paid to the holder upon vesting of the RSUs. The Company recognized $20,000 and $549,000 in general and administrative: other expense during the years ended December 31, 2016, and December 31, 2015, respectively, in connection with this award.

 

 

During 2015 and 2014, PSU awards were granted to certain members of management and executive officers, with both a specified annual free cash flow performance target condition and a 1 year service condition, ending on December 31st. The PSUs would vested based on a scale ranging from 80% to 120% of the performance target with the vested amount ranging from 30% to 150%.  No PSUs would vest if AMC did not achieve the adjusted free cash flow minimum performance target or the participant’s service did not continue through the last day of the performance period, during the year ended December 31st. The vested PSUs will not be settled, and will be non-transferable, until the third anniversary of the date of grant. Under certain termination scenarios defined in the award agreement, the vested PSUs may be settled within 60 days following termination of service. A dividend equivalent equal to the amount paid in respect of one share of Class A common stock underlying the PSUs began to accrue with respect to the PSUs on the date of grant. Such accrued dividend equivalents are paid to the holder upon vesting of the PSUs. Thereafter, dividend equivalents are paid to the holder whenever dividends are paid on the Class A common stock.

 

2015 PSU Awards.  The PSU awards were granted on March 6, 2015. As a result of the one-year service condition being met and attainment of the target performance condition at 122.8%, the gross number of PSUs granted was 168,949 units. The Company recognized expense of $4,679,000, net of forfeitures, within general and administrative: other expense during the year ended December 31, 2015.

 

2014 PSU Awards.  If the performance target was met at 100%, the PSU awards granted on January 2, 2014, May 12, 2014, and June 25, 2014 would be 244,016 units, 1,819 units, and 1,655 units, respectively. AMC’s Board of Directors and Compensation Committee approved a modification to the performance target of the original PSU grant, which resulted in re-measurement of the fair value of the PSU awards as of September 15, 2014. In September 2014, the Board of Directors approved an increase in authorized capital expenditures for the year ended December 31, 2014 of $38,800,000 to accelerate deployment of certain customer experience enhancing strategic initiatives. As a result, the PSU awards’ adjusted free cash flow performance target was no longer considered probable of being met. The PSU adjusted free cash flow performance target was modified on September 15, 2014 to consider the impact of the additional authorized capital expenditures, making the awards probable at that time. The fair value of the stock at the modification date of September 15, 2014 was $24.60 per share and was based on the closing price of AMC’s stock. The Company recognized expense of $6,063,000, net of forfeitures, within general and administrative: other expense during the year ended December 31, 2014, as a result of the one-year service condition being met and attainment of the target performance condition at 100%.

 

 

The following table represents the RSU and PSU activity for the years ended December 31, 2016, December 31, 2015 and December 31, 2014: