||Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes and
schedules included elsewhere in this report.
We are a leader in the motion picture exhibition industry, with theatres in the U.S.,
Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia and Curacao. As of September 30, 2015, we managed our business under two reportable operating segments U.S.
markets and international markets. See Note 15 to our condensed consolidated financial statements.
We generate revenues primarily from
box office receipts and concession sales with additional revenues from screen advertising sales and other revenue streams, such as vendor marketing promotions, meeting rentals and electronic video games located in some of our theatres. Our
relationship with NCM has assisted us in expanding our offerings to domestic advertisers and broadening ancillary revenue sources such as digital video monitor advertising. Our Flix Media initiative has allowed us to expand screen advertising within
our international circuit and to other international exhibitors. We also offer alternative entertainment, such as live and pre-recorded sports programs, concert events, the Metropolitan Opera, in-theatre gaming and other special events in our
theatres through our recently formed Fathom joint venture, AC JV, LLC.
Films leading the box office for the nine months ended
September 30, 2015 included Jurassic World, Avengers: Age of Ultron, Inside Out, Furious 7, American Sniper, Minions, Cinderella, Mission: Impossible Rogue Nation, Pitch Perfect 2, Ant-Man, Home, Fifty Shades of Grey, The
SpongeBob Movie: Sponge Out of Water, Straight Outta Compton, San Andreas, Mad Max: Fury Road, The Divergent Series: Insurgent, Kingsman: The Secret Service, Spy, and Trainwreck. Films currently scheduled for wide-release during the
remainder of 2015 include Star Wars: The Force Awakens, Hunger Games: Mockingjay Part II, the 24th James Bond film Spectre, The Martian and The Good Dinosaur, among other films.
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film rental costs as a percentage of revenues are
generally higher for periods in which more blockbuster films are released. Film rental costs can also vary based on the length of a films run. Advertising costs, which are expensed as incurred, are primarily fixed at the theatre level as daily
movie directories placed in newspapers represent the largest component of advertising costs. The monthly cost of these advertisements is based on, among other things, the size of the directory and the frequency and size of the newspapers
Concession supplies expense is variable in nature and fluctuates with our concession revenues. We purchase concession
supplies to replace units sold. We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain volume rates.
Although salaries and wages include a fixed cost component (i.e. the minimum staffing costs to operate a theatre facility during non-peak
periods), salaries and wages move in relation to revenues as theatre staffing is adjusted to respond to changes in attendance. In some international locations, staffing levels are also subject to local regulations.
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly
minimum rent payment. Certain of our leases are subject to percentage rent only while others are subject to percentage rent in addition to their fixed monthly rent if a target annual revenue level is achieved. Facility lease expense as a percentage
of revenues is also affected by the number of theatres under operating leases, the number of theatres under capital leases and the number of fee-owned theatres.
Utilities and other costs include certain costs that have both fixed and variable components such as utilities, property taxes, janitorial
costs, repairs and maintenance and security services.