UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 20172020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-33401

CINEMARK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-5490327

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3900 Dallas Parkway

 

 

Suite 500

Plano, Texas

 

75093

(Address of principal executive offices)

 

(Zip Code)

Registrant's telephone number, including area code:  (972) 665-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $.001 per share

CNK

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No 

As of October 31, 2017, 116,466,904July 24, 2020, 117,674,000 shares of common stock were issued and outstanding.  

 

 


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I.     FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172020 and December 31, 20162019 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172020 and 20162019 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

34

 

 

 

 

 

 

Item 4.3.

ControlsQuantitative and ProceduresQualitative Disclosures About Market Risk

 

3447

Item 4.

Controls and Procedures

47

 

 

 

 

 

PART II.     OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

3548

 

 

 

 

 

 

Item 1A.

Risk Factors

 

3548

 

 

 

 

 

 

Item 6.

Exhibits

 

3650

 

 

 

 

 

SIGNATURES

 

3751

 


Cautionary Statement Regarding Forward-Looking Statements

Certain matters within this Quarterly Report on Form 10Q include “forward–looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The “forward-looking statements” may include our current expectations, assumptions, estimates and projections about our business and our industry. They may include statements relating to future revenues, expenses and profitability, the future development and expected growth of our business, projected capital expenditures, attendance at movies generally or in any of the markets in which we operate, the number or diversity of popular movies released and our ability to successfully license and exhibit popular films, national and international growth in our industry, competition from other exhibitors and alternative forms of entertainment and determinations in lawsuits in which we are defendants. Forward-looking statements can be identified by the use of words such as “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict, including, among others, the impacts of COVID-19. Such risks and uncertainties could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. For a description of the risk factors, please review the “Risk Factors” section or other sections in the Company’s Annual Report on Form 10-K filed February 23, 201721, 2020, as updated by the information related to COVID-19 that was included in a Form 8-K that was filed on April 13, 2020, including the documents incorporated by reference therein, and quarterly reportsthis Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission.10-Q. All forward-looking statements are expressly qualified in their entirety by such risk factors. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 


PART I - FINANCIALFINANCIAL INFORMATION

Item 1.Financial Statements

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data, unaudited)

 

September 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

469,446

 

 

$

561,235

 

 

$

571,755

 

 

$

488,313

 

Inventories

 

 

16,844

 

 

 

16,961

 

 

 

15,584

 

 

 

21,686

 

Accounts receivable

 

 

82,650

 

 

 

74,993

 

 

 

23,543

 

 

 

83,722

 

Current income tax receivable

 

 

4,381

 

 

 

7,367

 

 

 

111,558

 

 

 

4,082

 

Prepaid expenses and other

 

 

17,010

 

 

 

15,761

 

 

 

22,299

 

 

 

37,187

 

Total current assets

 

 

590,331

 

 

 

676,317

 

 

 

744,739

 

 

 

634,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

 

3,268,653

 

 

 

3,059,754

 

 

 

3,256,215

 

 

 

3,348,237

 

Less: accumulated depreciation and amortization

 

 

1,477,047

 

 

 

1,355,218

 

 

 

1,653,494

 

 

 

1,612,990

 

Theatre properties and equipment, net

 

 

1,791,606

 

 

 

1,704,536

 

 

 

1,602,721

 

 

 

1,735,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

 

1,315,482

 

 

 

1,383,080

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

1,294,342

 

 

 

1,262,963

 

 

 

1,266,937

 

 

 

1,283,371

 

Intangible assets - net

 

 

335,657

 

 

 

334,899

 

Intangible assets, net

 

 

317,115

 

 

 

321,769

 

Investment in NCM

 

 

204,347

 

 

 

189,995

 

 

 

258,706

 

 

 

265,792

 

Investments in and advances to affiliates

 

 

112,878

 

 

 

98,317

 

Investments in affiliates

 

 

131,130

 

 

 

155,285

 

Long-term deferred tax asset

 

 

2,098

 

 

 

2,051

 

 

 

15,056

 

 

 

9,369

 

Deferred charges and other assets - net

 

 

40,391

 

 

 

37,555

 

Deferred charges and other assets, net

 

 

38,229

 

 

 

39,114

 

Total other assets

 

 

1,989,713

 

 

 

1,925,780

 

 

 

2,027,173

 

 

 

2,074,700

 

 

 

 

 

 

 

 

 

Total assets

 

$

4,371,650

 

 

$

4,306,633

 

 

$

5,690,115

 

 

$

5,828,017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

7,099

 

 

$

5,671

 

 

$

7,349

 

 

$

6,595

 

Current portion of capital lease obligations

 

 

24,836

 

 

 

21,139

 

Current portion of operating lease obligations

 

 

213,124

 

 

 

217,406

 

Current portion of finance lease obligations

 

 

15,958

 

 

 

15,432

 

Current income tax payable

 

 

7,893

 

 

 

5,071

 

 

 

510

 

 

 

5,195

 

Current liability for uncertain tax positions

 

 

11,714

 

 

 

10,085

 

 

 

 

 

 

13,446

 

Accounts payable and accrued expenses

 

 

341,132

 

 

 

401,259

 

 

 

359,178

 

 

 

450,726

 

Total current liabilities

 

 

392,674

 

 

 

443,225

 

 

 

596,119

 

 

 

708,800

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,781,952

 

 

 

1,782,441

 

 

 

2,117,286

 

 

 

1,771,342

 

Capital lease obligations, less current portion

 

 

252,047

 

 

 

234,281

 

Operating lease obligations, less current portion

 

 

1,167,018

 

 

 

1,223,462

 

Finance lease obligations, less current portion

 

 

132,870

 

 

 

141,017

 

Long-term deferred tax liability

 

 

144,740

 

 

 

135,014

 

 

 

152,319

 

 

 

141,836

 

Long-term liability for uncertain tax positions

 

 

7,801

 

 

 

8,105

 

 

 

14,533

 

 

 

848

 

Deferred lease expenses

 

 

41,291

 

 

 

42,378

 

Deferred revenue - NCM

 

 

354,419

 

 

 

343,928

 

NCM screen advertising advances

 

 

348,187

 

 

 

348,354

 

Other long-term liabilities

 

 

44,906

 

 

 

44,301

 

 

 

63,003

 

 

 

44,036

 

Total long-term liabilities

 

 

2,627,156

 

 

 

2,590,448

 

 

 

3,995,216

 

 

 

3,670,895

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 19)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cinemark Holdings, Inc.'s stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value: 300,000,000 shares

authorized, 120,992,302 shares issued and 116,467,227 shares outstanding

at September 30, 2017 and 120,657,254 shares issued and 116,210,252 shares

outstanding at December 31, 2016

 

 

121

 

 

 

121

 

Common stock, $0.001 par value: 300,000,000 shares authorized, 122,516,246 shares issued and 117,681,782 shares outstanding at June 30, 2020 and 121,863,515 shares issued and 117,151,656 shares outstanding at December 31, 2019

 

 

122

 

 

 

122

 

Additional paid-in-capital

 

 

1,137,897

 

 

 

1,128,442

 

 

 

1,178,471

 

 

 

1,170,039

 

Treasury stock, 4,525,075 and 4,447,002 shares, at cost, at September 30, 2017

and December 31, 2016, respectively

 

 

(76,354

)

 

 

(73,411

)

Treasury stock, 4,834,464 and 4,711,859 shares, at cost, at June 30, 2020 and December 31, 2019, respectively

 

 

(84,365

)

 

 

(81,567

)

Retained earnings

 

 

521,058

 

 

 

453,679

 

 

 

414,785

 

 

 

687,332

 

Accumulated other comprehensive loss

 

 

(242,894

)

 

 

(247,013

)

 

 

(422,092

)

 

 

(340,112

)

Total Cinemark Holdings, Inc.'s stockholders' equity

 

 

1,339,828

 

 

 

1,261,818

 

 

 

1,086,921

 

 

 

1,435,814

 

Noncontrolling interests

 

 

11,992

 

 

 

11,142

 

 

 

11,859

 

 

 

12,508

 

Total equity

 

 

1,351,820

 

 

 

1,272,960

 

 

 

1,098,780

 

 

 

1,448,322

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,371,650

 

 

$

4,306,633

 

 

$

5,690,115

 

 

$

5,828,017

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except per share data, unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

425,128

 

 

$

472,842

 

 

$

1,351,477

 

 

$

1,364,737

 

 

$

37

 

 

$

521,072

 

 

$

292,499

 

 

$

916,612

 

Concession

 

 

247,027

 

 

 

261,391

 

 

 

777,573

 

 

 

752,798

 

 

 

124

 

 

 

345,282

 

 

 

190,480

 

 

 

596,606

 

Other

 

 

38,593

 

 

 

34,341

 

 

 

112,503

 

 

 

100,312

 

 

 

8,813

 

 

 

91,402

 

 

 

69,611

 

 

 

159,261

 

Total revenues

 

 

710,748

 

 

 

768,574

 

 

 

2,241,553

 

 

 

2,217,847

 

 

 

8,974

 

 

 

957,756

 

 

 

552,590

 

 

 

1,672,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

226,229

 

 

 

249,766

 

 

 

725,603

 

 

 

733,101

 

 

 

388

 

 

 

294,705

 

 

 

157,005

 

 

 

504,782

 

Concession supplies

 

 

40,178

 

 

 

41,888

 

 

 

124,117

 

 

 

116,999

 

 

 

2,379

 

 

 

62,717

 

 

 

37,191

 

 

 

105,788

 

Salaries and wages

 

 

87,305

 

 

 

84,460

 

 

 

261,318

 

 

 

243,833

 

 

 

8,864

 

 

 

108,910

 

 

 

96,408

 

 

 

205,046

 

Facility lease expense

 

 

81,919

 

 

 

82,848

 

 

 

248,569

 

 

 

241,904

 

 

 

65,202

 

 

 

89,480

 

 

 

147,443

 

 

 

175,093

 

Utilities and other

 

 

92,341

 

 

 

94,999

 

 

 

271,751

 

 

 

265,506

 

 

 

34,871

 

 

 

122,696

 

 

 

135,394

 

 

 

233,333

 

General and administrative expenses

 

 

36,947

 

 

 

35,290

 

 

 

112,997

 

 

 

109,143

 

 

 

28,001

 

 

 

44,324

 

 

 

69,019

 

 

 

82,300

 

Depreciation and amortization

 

 

58,052

 

 

 

54,187

 

 

 

174,545

 

 

 

155,874

 

 

 

63,581

 

 

 

64,573

 

 

 

128,837

 

 

 

129,035

 

Impairment of long-lived assets

 

 

5,026

 

 

 

406

 

 

 

9,600

 

 

 

2,323

 

 

 

 

 

 

12,494

 

 

 

16,619

 

 

 

18,078

 

Loss on sale of assets and other

 

 

8,576

 

 

 

6,940

 

 

 

9,464

 

 

 

10,985

 

Restructuring costs

 

 

19,538

 

 

 

 

 

 

19,538

 

 

 

 

Loss on disposal of assets and other

 

 

425

 

 

 

1,805

 

 

 

2,330

 

 

 

5,604

 

Total cost of operations

 

 

636,573

 

 

 

650,784

 

 

 

1,937,964

 

 

 

1,879,668

 

 

 

223,249

 

 

 

801,704

 

 

 

809,784

 

 

 

1,459,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

74,175

 

 

 

117,790

 

 

 

303,589

 

 

 

338,179

 

Operating income (loss)

 

 

(214,275

)

 

 

156,052

 

 

 

(257,194

)

 

 

213,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(26,317

)

 

 

(26,659

)

 

 

(79,208

)

 

 

(81,980

)

 

 

(28,372

)

 

 

(24,929

)

 

 

(53,038

)

 

 

(50,070

)

Loss on debt amendments and refinancing

 

 

 

 

 

 

 

 

(246

)

 

 

(13,284

)

Amortization of accumulated losses for amended swap agreements

 

 

(2,669

)

 

 

 

 

 

(2,669

)

 

 

 

Interest income

 

 

1,682

 

 

 

1,665

 

 

 

4,395

 

 

 

5,030

 

 

 

803

 

 

 

3,468

 

 

 

2,887

 

 

 

6,159

 

Foreign currency exchange gain

 

 

584

 

 

 

485

 

 

 

2,018

 

 

 

2,883

 

Foreign currency exchange gain (loss)

 

 

916

 

 

 

(401

)

 

 

(3,932

)

 

 

(379

)

Distributions from NCM

 

 

2,144

 

 

 

1,381

 

 

 

11,704

 

 

 

10,117

 

 

 

690

 

 

 

2,146

 

 

 

5,914

 

 

 

6,694

 

Equity in income of affiliates

 

 

10,902

 

 

 

12,390

 

 

 

26,767

 

 

 

24,597

 

Interest expense - NCM

 

 

(5,934

)

 

 

(4,732

)

 

 

(11,825

)

 

 

(9,514

)

Equity in income (loss) of affiliates

 

 

(20,120

)

 

 

8,439

 

 

 

(11,634

)

 

 

18,843

 

Total other expense

 

 

(11,005

)

 

 

(10,738

)

 

 

(34,570

)

 

 

(52,637

)

 

 

(54,686

)

 

 

(16,009

)

 

 

(74,297

)

 

 

(28,267

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

63,170

 

 

 

107,052

 

 

 

269,019

 

 

 

285,542

 

Income (loss) before income taxes

 

 

(268,961

)

 

 

140,043

 

 

 

(331,491

)

 

 

185,153

 

Income taxes

 

 

24,630

 

 

 

40,926

 

 

 

98,475

 

 

 

106,002

 

 

 

(98,145

)

 

 

38,182

 

 

 

(101,253

)

 

 

50,099

 

Net income

 

$

38,540

 

 

$

66,126

 

 

$

170,544

 

 

$

179,540

 

Less: Net income attributable to noncontrolling interests

 

 

401

 

 

 

471

 

 

 

1,438

 

 

 

1,454

 

Net income attributable to Cinemark Holdings, Inc.

 

$

38,139

 

 

$

65,655

 

 

$

169,106

 

 

$

178,086

 

Net income (loss)

 

$

(170,816

)

 

$

101,861

 

 

$

(230,238

)

 

$

135,054

 

Less: Net income (loss) attributable to noncontrolling interests

 

 

(427

)

 

 

890

 

 

 

(258

)

 

 

1,355

 

Net income (loss) attributable to Cinemark Holdings, Inc.

 

$

(170,389

)

 

$

100,971

 

 

$

(229,980

)

 

$

133,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

115,823

 

 

 

115,601

 

 

 

115,746

 

 

 

115,475

 

 

 

116,666

 

 

 

116,325

 

 

 

116,581

 

 

 

116,253

 

Diluted

 

 

116,104

 

 

 

115,793

 

 

 

116,063

 

 

 

115,706

 

 

 

116,666

 

 

 

116,548

 

 

 

116,581

 

 

 

116,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Cinemark Holdings, Inc.'s

common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share attributable to Cinemark Holdings, Inc.'s common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

0.56

 

 

$

1.45

 

 

$

1.53

 

 

$

(1.45

)

 

$

0.86

 

 

$

(1.96

)

 

$

1.14

 

Diluted

 

$

0.33

 

 

$

0.56

 

 

$

1.45

 

 

$

1.53

 

 

$

(1.45

)

 

$

0.86

 

 

$

(1.96

)

 

$

1.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.29

 

 

$

0.27

 

 

$

0.87

 

 

$

0.81

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

38,540

 

 

$

66,126

 

 

$

170,544

 

 

$

179,540

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain due to fair value adjustments on interest rate

   swap agreements, net of settlements, net of taxes of $0, $0,

   $0 and $138

 

 

 

 

 

 

 

 

 

 

 

234

 

Other comprehensive income (loss) in equity method

   investments

 

 

(11

)

 

 

(7

)

 

 

92

 

 

 

(183

)

Foreign currency translation adjustments

 

 

9,085

 

 

 

(3,669

)

 

 

5,578

 

 

 

34,998

 

Total other comprehensive income (loss), net of tax

 

 

9,074

 

 

 

(3,676

)

 

 

5,670

 

 

 

35,049

 

Total comprehensive income, net of tax

 

 

47,614

 

 

 

62,450

 

 

 

176,214

 

 

 

214,589

 

Comprehensive income attributable to noncontrolling interests

 

 

(401

)

 

 

(475

)

 

 

(1,438

)

 

 

(1,478

)

Comprehensive income attributable to Cinemark

   Holdings, Inc.

 

$

47,213

 

 

$

61,975

 

 

$

174,776

 

 

$

213,111

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

(170,816

)

 

$

101,861

 

 

$

(230,238

)

 

$

135,054

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) due to fair value adjustments on interest rate swap agreements, net of taxes of $275, $1,905, $1,954 and $2,974, net of settlements

 

 

849

 

 

 

(5,902

)

 

 

(23,322

)

 

 

(9,213

)

Other comprehensive loss in equity method investments

 

 

 

 

 

(22

)

 

 

 

 

 

(93

)

Foreign currency translation adjustments

 

 

(3,702

)

 

 

4,925

 

 

 

(61,327

)

 

 

5,680

 

Total other comprehensive loss, net of tax

 

 

(2,853

)

 

 

(999

)

 

 

(84,649

)

 

 

(3,626

)

Total comprehensive income (loss), net of tax

 

 

(173,669

)

 

 

100,862

 

 

 

(314,887

)

 

 

131,428

 

Comprehensive (income) loss attributable to noncontrolling interests

 

 

427

 

 

 

(890

)

 

 

258

 

 

 

(1,355

)

Comprehensive income (loss) attributable to Cinemark Holdings, Inc.

 

$

(173,242

)

 

$

99,972

 

 

$

(314,629

)

 

$

130,073

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

170,544

 

 

$

179,540

 

Adjustments to reconcile net income to cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

173,378

 

 

 

154,308

 

Amortization of intangible and other assets and

   favorable/unfavorable leases

 

 

1,167

 

 

 

1,566

 

Amortization of long-term prepaid rents

 

 

1,540

 

 

 

1,357

 

Amortization of debt issue costs

 

 

4,619

 

 

 

4,068

 

Amortization of deferred revenues, deferred lease incentives

   and other

 

 

(12,037

)

 

 

(13,017

)

Impairment of long-lived assets

 

 

9,600

 

 

 

2,323

 

Share based awards compensation expense

 

 

9,487

 

 

 

10,247

 

Loss on sale of assets and other

 

 

9,464

 

 

 

10,985

 

Write-off of unamortized debt issue costs associated with early

   retirement of debt

 

 

 

 

 

2,369

 

Deferred lease expenses

 

 

(1,019

)

 

 

(809

)

Equity in income of affiliates

 

 

(26,767

)

 

 

(24,597

)

Deferred income tax expenses

 

 

9,541

 

 

 

16,382

 

Distributions from equity investees

 

 

17,321

 

 

 

9,660

 

Changes in assets and liabilities and other

 

 

(55,433

)

 

 

(76,102

)

Net cash provided by operating activities

 

 

311,405

 

 

 

278,280

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Additions to theatre properties and equipment and other

 

 

(262,730

)

 

 

(230,346

)

Acquisitions of theatres in the U.S. and international markets

 

 

(41,000

)

 

 

(15,300

)

Proceeds from sale of theatre properties and equipment and other

 

 

14,816

 

 

 

3,398

 

Proceeds from sale of marketable securities

 

 

 

 

 

13,451

 

Investment in joint ventures and other

 

 

(1,178

)

 

 

(1,703

)

Net cash used for investing activities

 

 

(290,092

)

 

 

(230,500

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Dividends paid to stockholders

 

 

(101,304

)

 

 

(94,117

)

Payroll taxes paid as a result of restricted stock withholdings

 

 

(2,943

)

 

 

(6,828

)

Proceeds from issuance of Senior Notes, net of discount

 

 

 

 

 

222,750

 

Retirement of Senior Subordinated Notes

 

 

 

 

 

(200,000

)

Repayments of long-term debt

 

 

(2,855

)

 

 

(15,217

)

Payment of debt issue costs

 

 

(817

)

 

 

(4,504

)

Payments on capital leases

 

 

(15,814

)

 

 

(14,655

)

Proceeds from financing lease

 

 

10,200

 

 

 

 

Other

 

 

(620

)

 

 

1,282

 

Net cash used for financing activities

 

 

(114,153

)

 

 

(111,289

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

1,051

 

 

 

2,081

 

 

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

 

(91,789

)

 

 

(61,428

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

561,235

 

 

 

588,539

 

End of period

 

$

469,446

 

 

$

527,111

 

 

 

 

 

 

 

 

 

 

Supplemental information (see Note 13)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(230,238

)

 

$

135,054

 

Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

126,387

 

 

 

126,551

 

Amortization of intangible and other assets

 

 

2,450

 

 

 

2,484

 

Amortization of debt issue costs

 

 

2,917

 

 

 

2,655

 

Amortization of NCM screen advertising advances and other deferred revenues

 

 

(15,795

)

 

 

(8,020

)

Amortization of accumulated losses for amended swap agreements

 

 

2,669

 

 

 

 

Interest accrued on NCM screen advertising advances

 

 

11,825

 

 

 

 

Impairment of long-lived assets

 

 

16,619

 

 

 

18,078

 

Share based awards compensation expense

 

 

8,432

 

 

 

6,646

 

Loss on disposal of assets and other

 

 

2,330

 

 

 

5,604

 

Non-cash rent expense

 

 

833

 

 

 

(2,150

)

Equity in (income) loss of affiliates

 

 

11,634

 

 

 

(18,843

)

Deferred income tax expenses

 

 

3,380

 

 

 

5,840

 

Distributions from equity investees

 

 

23,284

 

 

 

19,665

 

Changes in assets and liabilities and other

 

 

(120,597

)

 

 

10,015

 

Net cash provided by (used for) operating activities

 

 

(153,870

)

 

 

303,579

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Additions to theatre properties and equipment

 

 

(46,959

)

 

 

(115,169

)

Acquisition of theatres in the U.S. and international markets, net of cash acquired

 

 

 

 

(10,170

)

Proceeds from sale of theatre properties and equipment and other

 

 

198

 

 

 

153

 

Investment in joint ventures and other, net

 

 

(50

)

 

 

 

Net cash used for investing activities

 

 

(46,811

)

 

 

(125,186

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Dividends paid to stockholders

 

 

(42,311

)

 

 

(79,620

)

Payroll taxes paid as a result of stock withholdings

 

 

(2,798

)

 

 

(2,247

)

Proceeds from revolving line of credit

 

 

98,800

 

 

 

 

Proceeds from other borrowings

 

 

256,136

 

 

 

 

Repayments of long-term debt

 

 

(3,298

)

 

 

(3,298

)

Payment of debt issue costs

 

 

(7,858

)

 

 

 

Payments on finance leases

 

 

(7,620

)

 

 

(7,131

)

Other

 

 

(392

)

 

 

(1,294

)

Net cash provided by (used for) financing activities

 

 

290,659

 

 

 

(93,590

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(6,536

)

 

 

367

 

 

 

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

 

83,442

 

 

 

85,170

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

488,313

 

 

 

426,222

 

End of period

 

$

571,755

 

 

$

511,392

 

 

 

 

 

 

 

 

 

 

Supplemental information (see Note 16)

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 


7


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

 

1.

The Company and Basis of Presentation

Cinemark Holdings, Inc.The Company and its subsidiaries (the “Company”) operatesoperate in the motion picture exhibition industry, with theatres in the United States (“U.S.”), Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Curacao and Paraguay.

The accompanying condensed consolidated balance sheet as of December 31, 2016,2019, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. Majority-owned subsidiaries thatof which the Company has control of are consolidated while those affiliates of which the Company owns between 20% and 50% and does not control are accounted for under the equity method. Those affiliates of which the Company owns less than 20% are generally accounted for under the cost method, unless the Company is deemed to have the ability to exercise significant influence over the affiliate, in which case the Company would account for its investment under the equity method. The results of these subsidiaries and affiliates are included in the condensed consolidated financial statements effective with their formation or from their dates of acquisition. Intercompany balances and transactions are eliminated in consolidation.  

These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and the notes thereto for the year ended December 31, 2016,2019, included in the Annual Report on Form 10-K filed February 23, 201721, 2020 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the three and ninesix months ended SeptemberJune 30, 20172020 are not necessarily indicative of the results to be achieved for the full year.

2.

Impact of COVID-19

The outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry. The social and economic effects are widespread, and the situation continues to evolve.  As a movie exhibitor that operates spaces where patrons gather in close proximity, the Company’s business has been, and continues to be, significantly impacted by protective actions taken by governmental authorities to control the spread of the pandemic.  To comply with government mandates, the Company temporarily closed all of its theatres in the U.S. and Latin America effective March 17, 2020 and March 18, 2020, respectively.  

Because of the Company’s focus on maintaining a healthy balance sheet and low leverage, the Company believes it entered the global COVID-19 crisis in a strong financial position. Even if the Company’s theatres remained closed for the remainder of the year, the Company believes it has sufficient cash to sustain operations into 2021. Nonetheless, the COVID-19 pandemic has had and may continue to have adverse effects on our business, results of operations, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness. In conjunction with the temporary closure of its theatres in March 2020, the Company implemented temporary personnel and salary reductions, halted non-essential operating and capital expenditures, suspended its quarterly dividend, negotiated modified timing and/or abatement of contractual payments with landlords and other major suppliers.  

The Company has elected to take advantage of certain tax-related benefits available under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) signed into U.S. federal law on March 27, 2020. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss (“NOL”) utilization and carryback periods, modifications to the net interest deduction limitations and a technical correction to the 2017 Tax Cuts and Jobs Act, which makes certain qualified improvement property eligible for bonus depreciation. The Company expects to receive approximately $20,000 in cash tax refunds related to qualified improvement property expenditures from 2018 and 2019, to defer payment of employer social security payroll taxes for 2020, to receive payroll tax credits for expenses related to paying wages and health benefits to employees who were not working as a result of closures and reduced receipts associated with COVID-19, and to apply tax losses incurred in 2020 to prior year income for refunds when its 2020 return is filed in 2021.  The Company continues to review and evaluate other available potential benefits under the CARES Act as well as any future legislation signed into law during 2020. If the Company receives certain government disaster relief assistance, it may be subject to certain requirements imposed by the government on the recipients of the aid including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt, incurrence of additional indebtedness and other similar restrictions until the aid is repaid or redeemed

8


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

in full. However, the Company cannot predict the manner in which such benefits will be allocated or administered and cannot predict whether it will be able to access such benefits in a timely manner or at all.

The Company continues to evaluate availability of new studio content, the status of the COVID-19 pandemic and local government regulations in assessing its reopening plans.  The Company reopened five of its domestic theatres in June 2020 as part of its test-and-learn strategy to define training, communication, implementation and execution of enhanced health and safety protocols.  These theatres opened to reduced operating hours with library content and “welcome back” pricing for tickets and concession products to encourage patrons to return to the movies.  The Company expanded its test-and-learn strategy to ten additional theatres on July 31, 2020 to further assess protocols and analyze results in other markets across the U.S.  The Company is evaluating the timing of its phased reopening of additional theatres, which is subject to the status of the COVID-19 pandemic, local government regulations and availability of new studio content.  The Company is still evaluating the timing of reopening of its theatres in Latin America.

The Company has implemented health and safety protocols in its theatres as a result of the pandemic for the safety of its employees and guests including, but not limited to, the following:

2.

New Accounting Pronouncements

staggering showtimes to maximize physical distancing

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASU 2014-09”). The purpose of ASU 2014-09 is to clarify the principles for recognizing revenue and create a common revenue standard for U.S. GAAP and International Financial Reporting Standards. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts).  The following subsequent Accounting Standards Updates either clarified or revised guidance set forth in ASU 2014-09:

In August 2015, the FASB issued Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, (“ASU 2015-14”).  ASU 2015-14 deferred the effective date of ASU 2014-09.  The guidance in ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.

In March 2016, the FASB issued Accounting Standards Update 2016-08, Revenue from Contracts with Customers (Topic 606):  Principal versus Agent Considerations (Reporting Revenues Gross versus Net), (“ASU 2016-08”). The purpose of ASU 2016-08 is to clarify the implementation of revenue recognition guidance for principal versus agent considerations.

In April 2016, the FASB issued Accounting Standards Update 2016-10, Revenue from Contracts with Customers (Topic 606):  Identifying Performance Obligations and Licensing, (“ASU 2016-10”). The purpose of ASU 2016-10 is to clarify certain aspects of identifying performance obligations and licensing implementation guidance.

In May 2016, the FASB issued Accounting Standards Update 2016-12, Revenue from Contracts with Customers (Topic 606):  Narrow-Scope Improvements and Practical Expedients, (“ASU 2016-12”). The purpose of ASU 2016-12 is to address certain narrow aspects of Accounting Standards Codification (“ASC”) Topic 606 including assessing collectability, presentation of sales taxes, noncash considerations, contract modifications and completed contracts at transition.

 

In December 2016,employing seat buffering technology to ensure social distancing within the FASB issued Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, (“ASU 2016-20”). The purposeauditorium

implementing contactless transactions, such as limiting the use of ASU 2016-20 is to amend certain narrow aspects of the guidance issued in ASU 2014-09 relatedcash to the disclosurebox office and eliminating the paper ticket stub

requiring face masks for all guests within the theater, which may only be removed for eating and drinking in the auditoriums

substantially raising fresh-air rates of performance obligations, as well asour building HVAC systems by adding purge cycles and constantly using supply fans to increase the total volume of fresh, outside air flowing into our theaters

using vacuums equipped with new HEPA filters that trap microscopic particles, including COVID-19

implementing stringent disinfecting and sanitizing protocols and supply of hand sanitizer and seat wipes for patrons

requiring that employees receive special training, participate in wellness check-ins and use personal protective wear, including face masks and gloves

8With these comprehensive health and safety protocols in place, the Company believes it can more safely operate theaters while prioritizing the health of employees, guests and communities.  The Company will continue to evolve these protocols based on changes to recommendations by the Centers for Disease Control and Prevention and local government mandates, as well as the Company’s experiences as it reopens theatres.  

Restructuring Charges

In addition to the Company’s initial actions in response to the COVID-19 pandemic discussed above, during June 2020, Company management approved and announced a restructuring plan to realign its operations to create a more efficient cost structure (referred to herein as the “2020 Restructuring Plan”).  The 2020 Restructuring Plan primarily includes a permanent headcount reduction at its domestic corporate office and the permanent closure of 13 domestic and 7 international theatres.  The Company recorded $19,538 in restructuring costs on the condensed consolidated statement of income for the three and six months ended June 30, 2020.  The following table summarizes the costs of the 2020 Restructuring Plan and the remaining liability at June 30, 2020:

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

Employee-related Costs

 

Facility Closure Costs

 

Total Charges

 

 

Employee-related Costs

 

Facility Closure Costs

 

Total Charges

 

 

Employee-related Costs

 

Facility Closure Costs

 

Total Charges

 

Restructuring charges during the three months ended June 30, 2020

 

$

8,955

 

$

7,589

 

$

16,544

 

 

$

163

 

$

2,831

 

$

2,994

 

 

$

9,118

 

$

10,420

 

$

19,538

 

Amounts paid

 

 

(90

)

 

(482

)

 

(572

)

 

 

 

 

(42

)

 

(42

)

 

 

(90

)

 

(524

)

 

(614

)

Noncash write-offs

 

 

 

 

88

 

 

88

 

 

 

 

 

(2,374

)

 

(2,374

)

 

 

 

 

(2,286

)

 

(2,286

)

Reserve balance at June 30, 2020

 

$

8,865

 

$

7,195

 

$

16,060

 

 

$

163

 

$

415

 

$

578

 

 

$

9,028

 

$

7,610

 

$

16,638

 

The unpaid and accrued restructuring costs of $16,638 are reflected in accounts payable and accrued expenses on the condensed consolidated balance sheet as of June 30, 2020.  

9


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

3.

other amendments related to loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.New Accounting Pronouncements

The amendments in these accounting standards updates may be applied either using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as ofASU 2019-12, Income Taxes (Topic 740): Simplifying the beginning of the fiscal year in which the guidance is effective or retrospectively to each period presented. Early adoption is permitted.

The Company will adopt the amendments within these accounting standards updates in the first quarter of 2018 using the modified retrospective transition method. The Company is continuing to evaluate the impact of these accounting standards updates on its condensed consolidated financial statements, specifically with respect to the Company’s Exhibitor Services Agreement (“ESA”) with NCM, loyalty program accounting, breakage incomeAccounting for stored value cards as well as other ancillary and contractual revenues.  The Company believes its ESA with NCM includes a significant financing component and, as a result, other revenues will increase with a similar offsetting increase in interest expense each year until the ESA term expires.  In addition, the amortization method used to amortize the deferred revenue associated with the ESA will change to straight-line under the new accounting standards due to the nature of the Company’s performance obligation under the ESA. The change in amortization method will result in a cumulative effect adjustment upon adoption, the value of which the Company is currently evaluating.  

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842)Income Taxes, (“ASU 2016-02”2019-12”).  The purpose of ASU 2016-022019-12 is to provide financial statement users a better understanding ofsimplify the amount, timing,accounting for income taxes.  The improvements in ASU 2019-12 include removing certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and uncertainty of cash flows arising from leases. The adoption ofcalculating income taxes in interim periods. ASU 2016-02 will result2019-12 also adds guidance to reduce complexity in the recognitioncertain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a right-of-use asset and a lease liability for most operating leases.  New disclosure requirements include qualitative and quantitative information about the amounts recorded in the financial statements.consolidated group.  ASU 2016-022019-12 is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 requires a modified retrospective transition by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective with the option to elect certain practical expedients. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-02 on its condensed consolidated financial statements.  The most significant impact of the amendments in ASU 2016-02 will be the recognition of new right-of-use assets and lease liabilities for assets currently subject to operating leases.  The Company will adopt the amendments in ASU 2016-02 in the first quarter of 2019.  

In March 2016, the FASB issued Accounting Standards Update 2016-09, Compensation – Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting, (“ASU 2016-09”). The purpose of ASU 2016-09 is to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of such activity on the statement of cash flows.  ASU 2016-09 is effective for fiscal years beginning after December 15, 2016,2020, including interim periods within that year.  Prospective, retrospective, or modified retrospective application mayThe amendments in ASU 2019-12 should be used dependentapplied prospectively.  The Company is evaluating the impact of ASU 2019-12 and does not expect ASU-2019-12 to have a significant impact on the specific requirementscondensed consolidated financial statements.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the amendments within ASU 2016-09. Effective January 1, 2017, the Company adopted ASU 2016-09Effects of Reference Rate Reform on a prospective basis (see Note 3).  As such, prior periods have not been adjusted.

In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments – a consensus of the FASB Emerging Issues Task ForceFinancial Reporting, (“ASU 2016-15”2020-04”). The purpose of ASU 2016-152020-04 is to reduceprovide optional guidance for a limited period of time to ease the diversitypotential burden in practice regarding how certain cash receipts and cash payments are presented and classified inaccounting for (or recognizing the statement of cash flows.  ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year.  A retrospective transition method should be used in the application ofeffects of) reference rate reform on financial reporting. More specifically, the amendments withinin ASU 2016-15.  Early adoption is permitted.2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.  The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Company does not expectis evaluating the impact of ASU 2016-15 to have a material2020-04 and its impact on itsthe condensed consolidated financial statements.

4.

Lease Accounting

Lease Deferrals and Abatements

Upon the temporary closure of theatres in March 2020, the Company initiated discussions with landlords to negotiate the deferral of rent and other lease-related payments while theatres remained closed.  The amendments signed with the landlords involve varying concessions, including the abatement of rent payments during closure, deferral of all or a portion of rent payments to later periods and deferrals of rent payments to later periods combined with an early exercise of an existing renewal option or extension of the lease term.  In some cases, the Company is entitled to rent-free periods while theatres remain closed in certain locations due to local regulations.  Total payments withheld and/or deferred as of June 30, 2020 were approximately $42,691 and are included in accounts payable and accrued expenses in the condensed consolidated balance sheet. Additional negotiations of payment terms are still in process.

In January 2017,April 2020, the FASB issued Accounting Standards Update 2017-04, Intangibles – Goodwillstaff released guidance indicating that in response to the COVID-19 crisis, an entity would not have to analyze each contract to determine whether enforceable rights and Other (Topic 350):  Simplifyingobligations for concessions exist in the Testcontract and can elect to apply or not apply the lease modification guidance in Topic 842 to those contracts.  The election is available for Goodwill Impairment, (“ASU 2017-04”). The purpose of ASU 2017-04 isconcessions related to simplify the subsequent measurement of goodwill by removing the second stepeffects of the two-step impairment test. The amendments should be applied onCOVID-19 pandemic that do not result in a prospective basis. ASU 2017-04substantial increase in the rights of the lessor or the obligations of the lessee. For example, this election is effectiveavailable for fiscal years beginning after December 15, 2019, including interim periods withinconcessions that year. Early adoption is permitted for interimresult in the total payments required by the modified contract being substantially the same as or annual goodwill impairment tests performed on testing dates after January 1, 2017.  less than total payments required by the original contract.

The Company adoptedelected to not remeasure the amendmentsrelated lease liabilities and right-of-use assets for those leases where the concessions and deferrals did not result in ASU 2017-04 duringa significant change in total payments under the second quarterlease and where the remaining lease term did not change as a result of 2017 in orderthe negotiation.   For those leases that were renewed or extended as a result of the negotiation to reducedefer rent payments, the complexity of performing its goodwill impairment tests.  As discussed in Note 9, these tests are generally performed inCompany recalculated the fourth quarter of each year.  Therelated lease liability and right-of-use asset based on the new terms.  During the three months ended June 30, 2020, the Company doesdid not expect ASU 2017-04 to haverecognize a material impact on its condensed consolidated financial statements.amount of negative lease expense related to rent abatement concessions.

In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation – Stock Compensation (Topic 718):  Scope Modification Accounting, (“ASU 2017-09”). The amendments in ASU 2017-09 provide guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting as described in ASC Topic

910


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

718.  The amendments shouldfollowing table represents the Company’s aggregate lease costs, by lease classification, for the periods presented.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

Lease Cost

Classification

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating lease costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment (1)

Utilities and other

$

131

 

 

$

1,861

 

 

$

1,672

 

 

$

3,604

 

Real Estate (2)(3)

Facility lease expense

 

63,460

 

 

 

89,849

 

 

 

145,118

 

 

 

174,634

 

Total operating lease costs

 

$

63,591

 

 

$

91,710

 

 

$

146,790

 

 

$

178,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of leased assets

Depreciation and amortization

$

3,680

 

 

$

3,739

 

 

$

7,387

 

 

$

7,479

 

Interest on lease liabilities

Interest expense

 

1,757

 

 

 

1,984

 

 

 

3,608

 

 

 

4,005

 

Total finance lease costs

 

$

5,437

 

 

$

5,723

 

 

$

10,995

 

 

$

11,484

 

(1)

Includes approximately $(985) and $736 of short-term lease payments for the three months ended June 30, 2020 and 2019, respectively.  Includes approximately $(572) and $1,356 of short-term lease payments for the six months ended June 30, 2020 and 2019, respectively.  The amounts for the three and six months ended June 30, 2020 were impacted by i) a decrease in short term lease payments while theatres were closed and ii) rent abatements on leases that were not recalculated in accordance with the FASB guidance discussed above, which resulted in variable rent credits in the amount of the rent abatements.  

(2)

Includes approximately $(2,910) and $20,344 of variable lease payments based on a change in index, such as CPI or inflation, variable payments based on revenues or attendance and variable common area maintenance costs for the three months ended June 30, 2020 and 2019, respectively. Includes approximately $9,337 and $35,618 of variable lease payments based on a change in index, such as CPI or inflation, variable payments based on revenues or attendance and variable common area maintenance costs for the six months ended June 30, 2020 and 2019.  The amounts for the three and six months ended June 30, 2020 were impacted by rent abatements on leases that were not recalculated in accordance with the FASB guidance discussed above, which resulted in variable rent credits in the amount of the rent abatements.

(3)

Approximately $327 and $382 of lease payments are included in general and administrative expenses primarily related to office leases for the three months ended June 30, 2020 and 2019, respectively.  Approximately $787 and $784 of lease payments are included in general and administrative expenses primarily related to office leases for the six months ended June 30, 2020 and 2019, respectively.  

The following table represents the minimum cash lease payments included in the measurement of lease liabilities and the non-cash addition of assets for the periods indicated.

 

 

Six Months Ended

 

 

 

June 30,

 

Other Information

 

2020

 

 

2019

 

Contractual cash payments included in the measurement of lease liabilities(1)

 

 

 

 

 

 

 

 

Cash outflows for operating leases

 

$

138,025

 

 

$

141,264

 

Cash outflows for finance leases - operating activities

 

$

3,579

 

 

$

3,893

 

Cash outflows for finance leases - financing activities

 

$

7,620

 

 

$

7,131

 

Non-cash amount of leased assets obtained in exchange for:

 

 

 

 

 

 

 

 

Operating lease liabilities - real estate

 

$

60,788

 

 

$

37,582

 

Operating lease liabilities - equipment

 

$

56

 

 

$

339

 

Finance lease liabilities

 

$

 

 

$

 

(1)

As discussed above at Lease Deferrals and Abatements, the Company negotiated certain lease amendments to defer and/or abate contractual payments as a result of the COVID-19 pandemic and temporary closure of theatres.  In accordance with FASB Staff guidance, the Company did not recalculate lease liabilities and right of use assets for amendments that did not result in a substantial increase in the rights of the lessor or the obligations of the lessee.  Contractual payment amounts for the six months ended June 30, 2020 above are prior to the impact of deferred or abated rent amounts.  

As of June 30, 2020, the Company had signed lease agreements with total noncancelable lease payments of approximately $220,403 related to theatre leases that had not yet commenced.  The timing of lease commencement is dependent on the completion of construction of the related theatre facility.  Additionally, these amounts are based on estimated square footage and costs to construct each facility and may be applied on a prospective basis. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year. Early adoption is permitted.  The Company does not expect ASU 2017-09subject to have a material impact on its condensed consolidated financial statements.  adjustment upon final completion of each construction project.  In accordance with ASC Topic

11


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In August 2017,thousands, except share and per share data

842, fixed minimum lease payments related to these theatres are not included in the FASB issued Accounting Standards Update 2017-12, Derivativesright-of-use assets and Hedging (Topic 815):  Targeted Improvementslease liabilities as of June 30, 2020.  There were 0 noncancelable lease agreements signed, but not yet commenced, related to Accounting for Hedging Activities, (“ASU 2017-12”). The amendments in ASU 2017-12 improve the financial reportingequipment leases as of hedging relationships to better reflect the economic results of an entity’s risk management activities in its financial statements.  Additionally, the amendments in ASU 2017-12 simplify certain steps of applying hedge accounting guidance.  ASU 2017-04 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year. Early adoption is permitted.  The Company does not expect ASU 2017-12 to have a material impact on its condensed consolidated financial statements.June 30, 2020.  

3.5.

Revenue Recognition

The Company’s patrons have the option to purchase movie tickets well in advance of a movie showtime or right before the movie showtime, or at any point in between those two timeframes depending on seat availability. The Company recognizes such admissions revenues when the showtime for a purchased movie ticket has passed. Concession revenues are recognized when products are sold to the consumer. Other revenues primarily consist of screen advertising and screen rental revenues, promotional income, studio trailer placements and transactional fees. The Company sells gift cards and discount ticket vouchers, the proceeds from which are recorded as deferred revenues. Deferred revenues for gift cards and discount ticket vouchers are recognized when they are redeemed for concession items or, if redeemed for movie tickets, when the showtime has passed. The Company offers a subscription program in the U.S. whereby patrons can pay a monthly fee to receive a monthly credit for use towards a future movie ticket purchase. The Company records the monthly subscription program fees as deferred revenues and records admissions revenues when the showtime for a movie ticket purchased with a credit has passed.  The Company has loyalty programs in the U.S. and many of its international locations that either have a prepaid annual membership fee or award points to customers as purchases are made. For those loyalty programs that have an annual membership fee, the Company recognizes the fee collected as other revenues on a straight-line basis over the term of the membership.  For those loyalty programs that award points to customers based on their purchases, the Company records a portion of the original transaction proceeds as deferred revenues based on the number of reward points issued to customers and recognizes the deferred revenues when the customer redeems such points. The value of loyalty points issued is based on the estimated fair value of the rewards offered. The Company records breakage revenue on gift cards and discount ticket vouchers generally based on redemption activity and historical experience with unused balances. The Company records breakage revenue upon the expiration of loyalty points and subscription credits. Advances collected on concession and other contracts are deferred and recognized during the period in which the Company satisfies the related performance obligations, which may differ from the period in which the advances are collected. These advances are recognized on either a straight-line basis over the term of the contracts or as the Company meets its performance obligations in accordance with the terms of the contracts.

Accounts receivable as of June 30, 2020 and December 31, 2019 included approximately $7,870 and $31,620 of receivables, respectively, related to contracts with customers.  The Company did 0t record any assets related to the costs to obtain or fulfill a contract with customers during the six months ended June 30, 2020 or June 30, 2019.

Disaggregation of Revenue

The following tables present revenues for the three and six months ended June 30, 2020 and 2019, disaggregated based on major type of good or service and by reportable operating segment and disaggregated based on timing of revenue recognition.

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30, 2020

 

 

June 30, 2020

 

 

U.S.

 

International

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

Major Goods/Services

Segment (1)

 

Segment

 

Consolidated

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Admissions revenues

$

37

 

$

 

$

37

 

 

$

232,363

 

 

$

60,136

 

 

$

292,499

 

Concession revenues

 

55

 

 

69

 

 

124

 

 

 

152,813

 

 

 

37,667

 

 

 

190,480

 

Screen advertising, screen rental and promotional revenues(2)

 

7,883

 

 

478

 

 

8,361

 

 

 

26,092

 

 

 

12,924

 

 

 

39,016

 

Other revenues

 

180

 

 

272

 

 

452

 

 

 

24,330

 

 

 

6,265

 

 

 

30,595

 

Total revenues

$

8,155

 

$

819

 

$

8,974

 

 

$

435,598

 

 

$

116,992

 

 

$

552,590

 

12


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data


 

Three Months Ended

 

 

Six Months Ended

 

 

June 30, 2019

 

 

June 30, 2019

 

 

U.S.

 

International

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

Major Goods/Services

Segment (1)

 

Segment

 

Consolidated

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Admissions revenues

$

406,923

 

$

114,149

 

$

521,072

 

 

$

715,762

 

 

$

200,850

 

 

$

916,612

 

Concession revenues

 

274,926

 

 

70,356

 

 

345,282

 

 

 

474,312

 

 

 

122,294

 

 

 

596,606

 

Screen advertising, screen rental and promotional revenues

 

22,302

 

 

19,101

 

 

41,403

 

 

 

42,882

 

 

 

33,139

 

 

 

76,021

 

Other revenues

 

38,775

 

 

11,224

 

 

49,999

 

 

 

64,786

 

 

 

18,454

 

 

 

83,240

 

Total revenues

$

742,926

 

$

214,830

 

$

957,756

 

 

$

1,297,742

 

 

$

374,737

 

 

$

1,672,479

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2020

 

 

 

U.S.

 

International

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

Timing of Recognition

 

Segment (1)

 

Segment

 

Consolidated

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Goods and services transferred at a point in time

 

$

89

 

$

77

 

$

166

 

 

$

401,531

 

 

$

101,329

 

 

$

502,860

 

Goods and services transferred over time(2)

 

 

8,066

 

 

742

 

 

8,808

 

 

 

34,067

 

 

 

15,663

 

 

 

49,730

 

Total

 

$

8,155

 

$

819

 

$

8,974

 

 

$

435,598

 

 

$

116,992

 

 

$

552,590

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2019

 

 

 

U.S.

 

International

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

Timing of Recognition

 

Segment (1)

 

Segment

 

Consolidated

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Goods and services transferred at a point in time

 

$

718,582

 

$

192,422

 

$

911,004

 

 

$

1,250,765

 

 

$

335,531

 

 

$

1,586,296

 

Goods and services transferred over time

 

 

24,344

 

 

22,408

 

 

46,752

 

 

 

46,977

 

 

 

39,206

 

 

 

86,183

 

Total

 

$

742,926

 

$

214,830

 

$

957,756

 

 

$

1,297,742

 

 

$

374,737

 

 

$

1,672,479

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 17 for additional information on intercompany eliminations.

(2)

Amount includes amortization of NCM screen advertising advances.  See Deferred Revenues below.  


13


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

Deferred Revenues

The following table presents changes in the Company’s advances and deferred revenues for the six months ended June 30, 2020.  

 

 

NCM screen advertising advances (1)

 

 

Other

Deferred

Revenues (2)

 

 

Total

 

Balance at January 1, 2020

 

$

348,354

 

 

$

138,426

 

 

$

486,780

 

Amounts recognized as accounts receivable

 

 

 

 

 

3,147

 

 

 

3,147

 

Cash received from customers in advance

 

 

 

 

 

44,557

 

 

 

44,557

 

Common units received from NCM (see Note 9)

 

 

3,620

 

 

 

 

 

 

3,620

 

Interest accrued related to significant financing component

 

 

11,825

 

 

 

 

 

 

11,825

 

Revenue recognized during period

 

 

(15,612

)

 

 

(43,617

)

 

 

(59,229

)

Foreign currency translation adjustments

 

 

 

 

 

(1,747

)

 

 

(1,747

)

Balance at June 30, 2020

 

$

348,187

 

 

$

140,766

 

 

$

488,953

 

(1)

See Note 9 for the maturity of balance as of June 30, 2020.

(2)

Includes liabilities associated with outstanding gift cards and discount ticket vouchers, points or rebates outstanding under the Company’s loyalty and membership programs and revenues not yet recognized for screen advertising, screen rental and other promotional activities. Classified as accounts payable and accrued expenses or other long-term liabilities on the condensed consolidated balance sheet.

The table below summarizes the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of June 30, 2020 and when the Company expects to recognize this revenue.

 

 

Twelve Months Ended June 30,

 

 

 

 

 

 

 

 

 

Remaining Performance Obligations

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

 

Total

 

Other Deferred revenue

 

$

125,777

 

 

$

14,893

 

 

$

96

 

 

$

 

 

$

 

 

$

 

 

$

140,766

 

6.

Earnings Per Share

The Company considers its unvested restricted stockshare based payment awards, which contain non-forfeitable rights to dividends, participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share for the two classes of stock (common stock and unvested restricted stock) is calculated by dividing net income by the weighted average number of shares of common stock and unvested restricted stock outstanding during the reporting period. Diluted earnings per share is calculated using the weighted average number of shares of common stock plus the potentially dilutive effect of common equivalent shares outstanding determined under both the two class method and the treasury stock method.

Effective January 1, 2017, the Company adopted ASU 2016-09 on a prospective basis.  

14


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the amendments in ASU 2016-09, the Company’s diluted earningsthousands, except share and per share calculation for the three and nine months ended September 30, 2017 excludes the estimated income tax benefits and deficiencies in the application of the treasury stock method.  Excess income tax benefits or deficiencies related to share based awards are recognized as discrete items in the income statement during the period in which they occur. See Note 8 for a discussion of share based awards and related income tax benefits recognized during the nine months ended September 30, 2017 and 2016.data

The following table presents computations of basic and diluted earnings per share under the two-class method:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Cinemark Holdings, Inc.

 

$

38,139

 

 

$

65,655

 

 

$

169,106

 

 

$

178,086

 

Earnings allocated to participating share-based awards (1)

 

 

(209

)

 

 

(336

)

 

 

(842

)

 

 

(805

)

Net income attributable to common stockholders

 

$

37,930

 

 

$

65,319

 

 

$

168,264

 

 

$

177,281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator (shares in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common stock outstanding

 

 

115,823

 

 

 

115,601

 

 

 

115,746

 

 

 

115,475

 

Common equivalent shares for restricted stock units

 

 

281

 

 

 

192

 

 

 

317

 

 

 

231

 

Diluted

 

 

116,104

 

 

 

115,793

 

 

 

116,063

 

 

 

115,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common

   stockholders

 

$

0.33

 

 

$

0.56

 

 

$

1.45

 

 

$

1.53

 

Diluted earnings per share attributable to common

   stockholders

 

$

0.33

 

 

$

0.56

 

 

$

1.45

 

 

$

1.53

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Cinemark Holdings, Inc.

 

$

(170,389

)

 

$

100,971

 

 

$

(229,980

)

 

$

133,699

 

Loss (earnings) allocated to participating share-based awards (1)

 

 

1,329

 

 

 

(656

)

 

 

1,514

 

 

 

(779

)

Net income (loss) attributable to common stockholders

 

$

(169,060

)

 

$

100,315

 

 

$

(228,466

)

 

$

132,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator (shares in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common stock outstanding

 

 

116,666

 

 

 

116,325

 

 

 

116,581

 

 

 

116,253

 

Common equivalent shares for restricted stock units (2)

 

 

 

 

 

223

 

 

 

 

 

 

271

 

Diluted common equivalent shares

 

 

116,666

 

 

 

116,548

 

 

 

116,581

 

 

 

116,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share attributable to common stockholders

 

$

(1.45

)

 

$

0.86

 

 

$

(1.96

)

 

$

1.14

 

Diluted earnings (loss) per share attributable to common stockholders

 

$

(1.45

)

 

$

0.86

 

 

$

(1.96

)

 

$

1.14

 

 

(1)

(1)

For the three months ended SeptemberJune 30, 20172020 and 2016,2019, a weighted average of approximately 643917 and 596763 shares of unvested restricted stock, respectively, were considered participating securities.  For the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, a weighted average of approximately 581771 and 526685 shares of unvested restricted stock, respectively, were considered participating securities.

(2)

For the three months ended June 30, 2020, approximately 475 common equivalent shares for restricted stock units were excluded because they were anti-dilutive.  For the six months ended June 30, 2020, approximately 28 common equivalent shares for restricted stock units were excluded because they were anti-dilutive.

10

7.

Long Term Debt Activity

Senior Secured Credit Facility

Cinemark USA, Inc. has a senior secured credit facility that includes a $700,000 term loan and a $100,000 revolving credit line (the “Credit Agreement”).  On March 25, 2020, the Company borrowed $98,800 under the revolving credit line of the Credit Agreement.  

As of June 30, 2020, there was $643,029 outstanding under the term loan and $98,800 outstanding under the revolving credit line.   As of June 30, 2020, approximately $1,200 was available for borrowing. Quarterly principal payments of $1,649 are due on the term loan through December 31, 2024, with a final principal payment of $613,351 due on March 29, 2025.  The revolving credit line matures November 28, 2022.

The average interest rate on outstanding term loan borrowings under the Credit Agreement at June 30, 2020 was approximately 3.4% per annum, after giving effect to the interest rate swap agreements discussed below.  The average interest rate on the outstanding revolver borrowings was 1.8% at June 30, 2020.

On April 17, 2020, in conjunction with the issuance of the 8.750% Secured Notes discussed below, the Company obtained a waiver of the maintenance covenant from the majority of revolving lenders under the Credit Agreement for the fiscal quarters ending September 30, 2020 and December 31, 2020.

8.750% Secured Notes

On April 20, 2020, Cinemark USA, Inc. issued $250,000 8.750% senior secured notes (the “8.750% Secured Notes”).  The notes will mature on May 1, 2025; provided, however, that if (i) on September 13, 2022, the aggregate outstanding principal amount of the 5.125% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50,000, the notes will mature on September 14, 2022 and (ii) on February 27, 2023, the aggregate outstanding principal amount of the 4.875% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50,000, the notes will mature on February 28, 2023. Interest on the notes will be payable on May 1 and November 1 of each year, beginning on November 1, 2020.  

15


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

The 8.750% Secured Notes will be fully and unconditionally guaranteed on a joint and several senior basis by certain of the Company’s subsidiaries that guarantee, assume or in any other manner become liable with respect to any of the Company’s or its guarantors’ other debt. If the Company cannot make payments on the 8.750% Secured Notes when they are due, the Company’s guarantors must make them instead. Under certain circumstances, the guarantees may be released without action by, or the consent of, the holders of the 8.750% Secured Notes.

The 8.750% Secured Notes and the guarantees will be the Company’s and its guarantors’ senior obligations and they will:

rank effectively senior in right of payment to the Company’s and its guarantors’ existing and future debt that is not secured by the collateral as described within the indentures to the 8.750% Secured Notes (“Collateral”), including all obligations under the Credit Agreement, and unsecured obligations, including the existing senior notes, in each case to the extent of the value of the collateral;

rank effectively junior to the Company’s and its guarantors’ existing and future debt secured by assets that are not part of the Collateral to the extent of the value of the collateral securing such debt, including all obligations under the Credit Agreement;

otherwise rank equally in right of payment to the Company’s and its guarantors’ existing and future senior debt, including debt under the Credit Agreement and the existing senior notes;

rank senior in right of payment to the Company’s and its guarantors’ future subordinated debt; and

be structurally subordinated to all existing and future debt and other liabilities of the Company’s non-guarantor subsidiaries.

The indenture to the 8.750% Secured Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. Upon a change of control, as defined in the indenture governing the 8.750% Secured Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 8.750% Secured Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indenture governing the 8.750% Secured Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies a coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances.

Additional Borrowings of International Subsidiaries

During May 2020, the Company’s subsidiary in Peru borrowed the USD equivalent of approximately $2,811 under a 1% loan. Principal payments are due monthly beginning in July 2021 through June 2023.  Accrued and unpaid interest is to be paid when principal payments are due.  The Company is subject to certain customary negative covenants under the loan.  

During May and June 2020, the Company’s subsidiary in Colombia borrowed the USD equivalent of approximately $3,325 under two variable rate loans. Aggregate principal payments are due monthly beginning in December 2020 through May 2023.  Accrued and unpaid interest is to be paid when principal payments are due.  The variable interest rates on the loans ranged from approximately 7.5% to 8.5% as of June 30, 2020.  The Company is subject to certain customary negative covenants under the loans.

Interest Rate Swap Agreements

Effective March 31, 2020, the Company amended and extended its 3 existing interest rate swap agreements and entered into a fourth interest rate swap agreement, all of which are used to hedge a portion of the interest rate risk associated with the variable interest rates on the Company’s term loan debt and qualify for cash flow hedge accounting. Below is a summary of the Company’s interest rate swap agreements designated as cash flow hedges as of June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value at

 

Notional

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

Amount

 

 

Effective Date

 

Pay Rate

 

 

Receive Rate

 

Expiration Date

 

2020 (1)

 

$

137,500

 

 

December 31, 2018

 

2.12%

 

 

1-Month LIBOR

 

December 31, 2024

 

$

10,934

 

$

175,000

 

 

December 31, 2018

 

2.12%

 

 

1-Month LIBOR

 

December 31, 2024

 

 

13,984

 

$

137,500

 

 

December 31, 2018

 

2.19%

 

 

1-Month LIBOR

 

December 31, 2024

 

 

11,398

 

$

150,000

 

 

March 31, 2020

 

0.57%

 

 

1-Month LIBOR

 

March 31, 2022

 

 

1,020

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

37,336

 

16


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

4.

Long Term Debt Activity(1)

Approximately $9,758 of the total is included in accounts payable and accrued expenses and $27,578 is included in other long-term liabilities on the condensed consolidated balance sheet as of June 30, 2020.

Senior Secured Credit Facility

On June 16, 2017, Cinemark USA, Inc., our wholly-owned subsidiary, amended its senior secured credit facility to reduceUpon amending the interest rate at whichswap agreements effective March 31,2020, the term loan bearsCompany determined that the interest by 0.25% and to modify certain covenant definitions within the agreement. The Company incurred debt issue costs of approximately $521 in connectionpayments hedged with the amendment, whichagreements are reflected asstill probable to occur, therefore the loss that accumulated on the swaps prior to the amendments of $29,359 is being amortized on a reductionstraight-line basis to interest expense through December 31, 2022, the original maturity dates of long term debtthe swaps.   Approximately $2,669 was recorded in amortization of accumulated losses for amended swaps in the condensed consolidated income statement for the three and six months ended June 30, 2020.

The fair values of the amended interest rate swaps and the new interest rate swap are recorded on the Company’s condensed consolidated balance sheet as an asset or liability with the related gains or losses reported as a component of September 30, 2017.  In addition,accumulated other comprehensive loss.  The changes in fair value are reclassified from accumulated other comprehensive loss into earnings in the same period that the hedged items affect earnings. The valuation technique used to determine fair value is the income approach.  Under this approach, the Company incurred approximately $246uses projected future interest rates, which fall in legal feesLevel 2 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35, as provided by counterparties to the interest rate swap agreements and the fixed rates that are reflected as loss on debt amendments and refinancing on the condensed consolidated statements of income forCompany is obligated to pay under the nine months ended September 30, 2017.  agreements.

Fair Value of Long-Term Debt

The Company estimates the fair value of its long-term debt using the market approach, which utilizes quoted market prices that fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by ASC 820, Fair Value Measurement (“ASC Topic 820.820”). The carrying value of the Company’s long-term debt was $1,820,112$2,152,965 and $1,822,966$1,801,327 as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, excluding unamortized debt discounts and debt issue costs. The fair value of the Company’s long-term debt was $1,840,641$1,984,469 and $1,850,212$1,826,503 as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively.

17


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

5.8.

Equity

Below is a summary of changes in stockholders’ equity attributable to Cinemark Holdings, Inc., noncontrolling interests and total equity for the ninethree and six months ended SeptemberJune 30, 20172020 and 2016:

2019:

 

 

Cinemark

 

 

 

 

 

 

 

 

 

 

 

Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

 

Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at January 1, 2017

 

$

1,261,818

 

 

$

11,142

 

 

$

1,272,960

 

Share based awards compensation expense

 

 

9,487

 

 

 

 

 

 

9,487

 

Stock withholdings related to share based awards that

   vested during the nine months ended September 30, 2017

 

 

(2,943

)

 

 

 

 

 

(2,943

)

Tax expense related to share based awards vesting

 

 

(32

)

 

 

 

 

(32

)

Dividends paid to stockholders (1)

 

 

(101,304

)

 

 

 

 

 

(101,304

)

Dividends accrued on unvested restricted stock unit

   awards (1)

 

 

(423

)

 

 

 

 

 

(423

)

Dividends paid to noncontrolling interests

 

 

 

 

 

(588

)

 

 

(588

)

Net income

 

 

169,106

 

 

 

1,438

 

 

 

170,544

 

Other comprehensive income in equity method investees

 

 

92

 

 

 

 

 

 

92

 

Foreign currency translation adjustments (see Note 12)

 

 

4,027

 

 

 

 

 

 

4,027

 

Balance at September 30, 2017

 

$

1,339,828

 

 

$

11,992

 

 

$

1,351,820

 

 

 

Common  Stock

 

Treasury Stock

 

Additional Paid-In-Capital

 

Retained Earnings

 

Accumulated Other Comprehensive Loss

 

Total Cinemark Holdings, Inc. Stockholders’ Equity

 

Noncontrolling Interests

 

Total Equity

 

Balance at January 1, 2020

 

$

122

 

$

(81,567

)

$

1,170,039

 

$

687,332

 

$

(340,112

)

$

1,435,814

 

$

12,508

 

$

1,448,322

 

Issuance of share based awards and share based awards compensation expense

 

 

 

 

 

 

4,111

 

 

 

 

 

 

4,111

 

 

 

 

4,111

 

Stock withholdings related to share based awards that vested during the three months ended March 31, 2020

 

 

 

 

(2,691

)

 

 

 

 

 

 

 

(2,691

)

 

 

 

(2,691

)

Dividends paid to stockholders, $0.36 per common share (1)

 

 

 

 

 

 

 

 

(42,311

)

 

 

 

(42,311

)

 

 

 

(42,311

)

Dividends paid to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(392

)

 

(392

)

Dividends accrued on unvested restricted stock unit awards (1)

 

 

 

 

 

 

 

 

(256

)

 

 

 

(256

)

 

 

 

(256

)

Net income (loss)

 

 

 

 

 

 

 

 

(59,591

)

 

 

 

(59,591

)

 

169

 

 

(59,422

)

Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes, net of settlements

 

 

 

 

 

 

 

 

 

 

(24,171

)

 

(24,171

)

 

 

 

(24,171

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

(57,625

)

 

(57,625

)

 

 

 

(57,625

)

Balance at March 31, 2020

 

 

122

 

 

(84,258

)

 

1,174,150

 

 

585,174

 

 

(421,908

)

 

1,253,280

 

 

12,285

 

 

1,265,565

 

Issuance of share based awards and share based awards compensation expense

 

 

 

 

 

 

4,321

 

 

 

 

 

 

4,321

 

 

 

 

4,321

 

Stock withholdings related to share based awards that vested during the three months ended June 30, 2020

 

 

 

 

(107

)

 

 

 

 

 

 

 

(107

)

 

 

 

(107

)

Net loss

 

 

 

 

 

 

 

 

(170,389

)

 

 

 

(170,389

)

 

(427

)

 

(170,816

)

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of taxes, net of settlements

 

 

 

 

 

 

 

 

 

 

849

 

 

849

 

 

 

 

849

 

Amortization of accumulated losses for amended swap agreements

 

 

 

 

 

 

 

 

 

 

2,669

 

 

2,669

 

 

 

 

2,669

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

(3,702

)

 

(3,702

)

 

 

 

(3,702

)

Balance at June 30, 2020

 

$

122

 

$

(84,365

)

$

1,178,471

 

$

414,785

 

$

(422,092

)

$

1,086,921

 

$

11,859

 

$

1,098,780

 

 

(1)

Below is a summary of dividends paid to stockholders and accrued on unvested restricted stock unit awards during the nine months ended September 30, 2017:  

 

 

 

 

 

 

Amount per Share

 

 

 

 

Declaration Date

 

Record Date

 

Payable Date

 

of Common Stock

 

 

Total

 

2/23/2017

 

3/8/2017

 

3/20/2017

 

$

0.29

 

 

$

33,912

 

5/25/2017

 

6/8/2017

 

6/22/2017

 

 

0.29

 

 

 

33,904

 

8/10/2017

 

8/31/2017

 

9/13/2017

 

 

0.29

 

 

 

33,911

 

 

 

 

 

Total

 

$

0.87

 

 

$

101,727

 

1118


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

 

 

Cinemark

 

 

 

 

 

 

 

 

 

 

 

Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

 

Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at January 1, 2016

 

$

1,099,708

 

 

$

11,105

 

 

$

1,110,813

 

Share based awards compensation expense

 

 

10,247

 

 

 

 

 

10,247

 

Stock withholdings related to share based awards that

   vested during the nine months ended September 30, 2016

 

 

(6,828

)

 

 

 

 

(6,828

)

Issuance of common stock related to restricted stock units

   that vested during the nine months ended September 30, 2016

 

 

1

 

 

 

 

 

1

 

Tax benefit related to share based awards vesting

 

 

1,797

 

 

 

 

 

1,797

 

Dividends paid to stockholders (2)

 

 

(94,117

)

 

 

 

 

(94,117

)

Dividends accrued on unvested restricted stock unit

   awards (2)

 

 

(360

)

 

 

 

 

(360

)

Dividends paid to noncontrolling interests

 

 

 

 

(515

)

 

 

(515

)

Net income

 

 

178,086

 

 

 

1,454

 

 

 

179,540

 

Fair value adjustments on interest rate swap agreements

   designated as hedges, net of settlements, net of

   taxes of  $138

 

 

234

 

 

 

 

 

234

 

Gain realized on available-for-sale securities, net of

   taxes of $1,180

 

 

(2,011

)

 

 

 

 

(2,011

)

Other comprehensive loss in equity method investees

 

 

(183

)

 

 

 

 

(183

)

Foreign currency translation adjustments

 

 

34,974

 

 

 

24

 

 

 

34,998

 

Balance at September 30, 2016

 

$

1,221,548

 

 

$

12,068

 

 

$

1,233,616

 

 

 

Common  Stock

 

Treasury Stock

 

Additional Paid-In-Capital

 

Retained Earnings

 

Accumulated Other Comprehensive Loss

 

Total Cinemark Holdings, Inc. Stockholders’ Equity

 

Noncontrolling Interests

 

Total Equity

 

Balance at January 1, 2019

 

$

121

 

$

(79,259

)

$

1,155,424

 

$

686,459

 

$

(319,007

)

$

1,443,738

 

$

12,379

 

$

1,456,117

 

Cumulative effect of change in accounting principle, net of taxes of $6,054

 

 

 

 

 

 

 

 

16,985

 

 

 

 

16,985

 

 

 

 

16,985

 

Issuance of share based awards and share based awards compensation expense

 

 

 

 

 

 

2,970

 

 

 

 

 

 

 

2,970

 

 

 

 

2,970

 

Stock withholdings related to share based awards that vested during the three months ended March 31, 2019

 

 

 

 

(1,947

)

 

 

 

 

 

 

 

(1,947

)

 

 

 

(1,947

)

Dividends paid to stockholders, $0.34 per common share (1)

 

 

 

 

 

 

 

 

(39,797

)

 

 

 

(39,797

)

 

 

 

(39,797

)

Dividends paid to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,000

)

 

(1,000

)

Dividends accrued on unvested restricted stock unit awards (1)

 

 

 

 

 

 

 

 

(108

)

 

 

 

(108

)

 

 

 

(108

)

Net income

 

 

 

 

 

 

 

 

32,728

 

 

 

 

32,728

 

 

465

 

 

33,193

 

Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes, net of settlements

 

 

 

 

 

 

 

 

 

 

(3,311

)

 

(3,311

)

 

 

 

(3,311

)

Other comprehensive loss in equity method investees

 

 

 

 

 

 

 

 

 

 

(71

)

 

(71

)

 

 

 

(71

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

755

 

 

755

 

 

 

 

755

 

Balance at March 31, 2019

 

 

121

 

 

(81,206

)

 

1,158,394

 

 

696,267

 

 

(321,634

)

 

1,451,942

 

 

11,844

 

 

1,463,786

 

Issuance of share based awards and share based awards compensation expense

 

 

1

 

 

 

 

3,676

 

 

 

 

 

 

3,677

 

 

 

 

3,677

 

Stock withholdings related to share based awards that vested during the three months ended June 30, 2019

 

 

 

 

(300

)

 

 

 

 

 

 

 

(300

)

 

 

 

(300

)

Dividends paid to stockholders, $0.34 per common share (1)

 

 

 

 

 

 

 

 

(39,823

)

 

 

 

(39,823

)

 

 

 

(39,823

)

Dividends paid to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(294

)

 

(294

)

Dividends accrued on unvested restricted stock unit awards (1)

 

 

 

 

 

 

 

 

(189

)

 

 

 

(189

)

 

 

 

(189

)

Net income

 

 

 

 

 

 

 

 

100,971

 

 

 

 

100,971

 

 

890

 

 

101,861

 

Other comprehensive loss in equity method investees

 

 

 

 

 

 

 

 

 

 

(22

)

 

(22

)

 

 

 

(22

)

Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes, net of settlements

 

 

 

 

 

 

 

 

 

 

(5,902

)

 

(5,902

)

 

 

 

(5,902

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

4,925

 

 

4,925

 

 

 

 

4,925

 

Balance at June 30, 2019

 

$

122

 

$

(81,506

)

$

1,162,070

 

$

757,226

 

$

(322,633

)

$

1,515,279

 

$

12,440

 

$

1,527,719

 

 

 

(2)(1)

Below is a summary of dividends paid to stockholders andas well as dividends accrued on unvested restricted stock unit awardsunits during the ninesix months ended SeptemberJune 30, 2016:  2020 and 2019:

 

 

 

 

 

 

Amount per Share

 

 

 

 

Declaration Date

 

Record Date

 

Payable Date

 

of Common Stock

 

 

Total

 

2/24/2016

 

3/7/2016

 

3/18/2016

 

$

0.27

 

 

$

31,367

 

5/26/2016

 

6/8/2016

 

6/22/2016

 

 

0.27

 

 

 

31,373

 

8/18/2016

 

8/31/2016

 

9/13/2016

 

 

0.27

 

 

 

31,737

 

 

 

 

 

Total

 

$

0.81

 

 

$

94,477

 

 

 

 

 

Amount per Share

 

 

 

 

 

Declaration Date

Record Date

Payable Date

 

of Common Stock

 

 

Total

 

2/21/2020

3/6/2020

3/20/2020

 

$

0.36

 

 

$

42,567

 

Six Months Ended June 30, 2020

 

$

0.36

 

 

$

42,567

 

 

 

 

 

 

 

 

 

 

 

 

2/22/2019

3/8/2019

3/22/2019

 

$

0.34

 

 

$

39,905

 

5/23/2019

6/8/2019

6/24/2019

 

 

0.34

 

 

 

40,012

 

Six Months Ended June 30, 2019

 

$

0.68

 

 

$

79,917

 

19


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

9.

National CineMedia

Below is a summary of activity with NCM included in the Company’s condensed consolidated financial statements:

 

 

Investment

in NCM

 

NCM Screen Advertising Advances

 

Distributions

from NCM

 

Equity in

Earnings

 

Other

Revenue

 

Interest Expense - NCM

 

Cash Received

 

Balance as of January 1, 2020

 

$

265,792

 

$

(348,354

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receipt of common units due to annual common unit adjustment ("CUA")

 

 

3,620

 

 

(3,620

)

$

 

$

 

$

 

$

 

$

 

Screen rental revenues earned under ESA (1)

 

 

 

 

 

 

 

 

 

 

(3,464

)

 

 

 

3,464

 

Interest accrued related to significant financing component

 

 

 

 

(11,825

)

 

 

 

 

 

 

 

11,825

 

 

 

Receipt of excess cash distributions

 

 

(12,022

)

 

 

 

(5,914

)

 

 

 

 

 

 

 

17,936

 

Equity in earnings

 

 

1,316

 

 

 

 

 

 

(1,316

)

 

 

 

 

 

 

Amortization of screen advertising advances

 

 

 

 

15,612

 

 

 

 

 

 

(15,612

)

 

 

 

 

Balance as of and for the six months ended June 30, 2020

 

$

258,706

 

$

(348,187

)

$

(5,914

)

$

(1,316

)

$

(19,076

)

$

11,825

 

$

21,400

 

 

6.(1)

Investment in National CineMediaAmounts include the per patron and per digital screen theatre access fees due to the Company, net of amounts due to NCM for on-screen advertising time provided to the Company’s beverage concessionaire of approximately $2,135.

The Company has an investment

Investment in National CineMedia LLC (“NCM”). 

NCM operates a digital in-theatre network in the U.S. for providing cinema advertising. Upon joining NCM, theThe Company entered into an Exhibitor Services Agreement with NCM (“ESA”), pursuant to which NCM primarily provides advertising and promotions to our theatres.As described further in Note 57 to the Company’s financial statements as included in its 20162019 Annual Report on Form 10-K, on February 13, 2007, National CineMedia,Cinemedia, Inc. (“NCM, Inc.”NCMI”), an entity that serves as the sole manager of NCM, completed an initial public offering (“IPO”) of its common stock.  In connection with the NCM, Inc.NCMI initial public offering, the Company amended its operating agreement and the ESA. At the time of the NCMI IPO and as a result of amending the ESA, the Company received approximately $174,000 in cash consideration from NCM.  The proceeds were recorded as deferred revenue or NCM screen advertising advances and was being amortized over the term of the Amended and Restated ESA, or through February 2041. Following the NCM, Inc.NCMI IPO, the Company does not recognize undistributed equity in the earnings on its original NCM membership units (referred to herein as the Company’s Tranche 1 Investment) until NCM’s future net earnings, less distributions received, surpass the amount of the excess distribution. The Company recognizes equity in earnings on its Tranche 1 Investment only to the extent it receives cash distributions from NCM. The Company recognizes cash distributions it receives from NCM on its Tranche 1 Investment as a component of earnings as Distributions from NCM.  The Company believes that the accounting model provided by ASC Topic 323-10-35-22 for recognition of equity investee losses in excess of an investor’s basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution.

12


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSCommon Unit Adjustments

In thousands, except shareaddition to the consideration received upon the NCMI IPO and per share data

Below is a summary of activity with NCM includedESA modification in 2007, the Company also periodically receives consideration in the Company’s condensed consolidated financial statements:

 

 

 

 

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment

 

 

Deferred

 

 

from

 

 

Equity in

 

 

Other

 

 

Cash

 

 

 

in NCM

 

 

Revenue

 

 

NCM

 

 

Income

 

 

Revenue

 

 

Received

 

Balance as of January 1, 2017

 

$

189,995

 

 

$

(343,928

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receipt of common units due to annual common

   unit adjustment

 

 

18,363

 

 

 

(18,363

)

 

$

 

 

$

 

 

$

 

 

$

 

Revenues earned under ESA (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,446

)

 

 

8,446

 

Receipt of excess cash distributions

 

 

(10,020

)

 

 

 

 

 

(9,630

)

 

 

 

 

 

 

 

 

19,650

 

Receipt under tax receivable agreement

 

 

(2,089

)

 

 

 

 

 

(2,074

)

 

 

 

 

 

 

 

 

4,163

 

Equity in earnings

 

 

8,098

 

 

 

 

 

 

 

 

 

(8,098

)

 

 

 

 

 

 

Amortization of deferred revenue

 

 

 

 

 

7,872

 

 

 

 

 

 

 

 

 

(7,872

)

 

 

 

Balance as of and for the nine months ended September 30, 2017

 

$

204,347

 

 

$

(354,419

)

 

$

(11,704

)

 

$

(8,098

)

 

$

(16,318

)

 

$

32,259

 

(1)

Amount includes the per patron and per digital screen theatre access fees due to the Company, net of amounts paid to NCM for on-screen advertising time provided to the Company’s beverage concessionaire of approximately $8,382.

During the three months ended September 30, 2017 and 2016, the Company recorded equity in earningsform of approximately $5,032 and $5,815, respectively. During the nine months ended September 30, 2017 and 2016, the Company recorded equity in earnings of approximately $8,098 and $7,660, respectively.

The Company made payments to NCM of approximately $75 and $41 during the nine months ended September 30, 2017 and 2016, respectively, related to installation of certain equipment used for digital advertising, which is included in theatre properties and equipment on the condensed consolidated balance sheets.  

common units from NCM.  Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc.NCMI and the Company, AMC Entertainment, Inc. (“AMC”) and Regal Entertainment Group (“Regal”) (collectively, “Founding Members”), annual adjustments to the common membership units are made primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by each Founding Member.generated. As further discussed in Note 57 to the Company’s financial statements as included in its 20162019 Annual Report on Form 10-K, the common units received (collectively referred to as the Company’s “Tranche 2 Investment”) are recorded at estimated fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue.NCM screen advertising advances. The deferred revenueCompany’s Tranche 2 Investment is amortized overaccounted for following the remaining termequity method, with undistributed equity earnings related to its Tranche 2 Investment included as a component of the ESA. earnings in equity in income of affiliates and distributions received related to its Tranche 2 Investment are recorded as a reduction of investment basis.

20


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

During March 2017,2020, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, on MarchJune 30, 2017,2020, the Company received an additional 1,487,2181,112,368 common units of NCM, each of which is convertible into one1 share of NCM, Inc.NCMI common stock. The Company recorded the additional common units received at estimated fair value with a corresponding adjustment to deferred revenueNCM screen advertising advances of approximately $18,363.$3,620. The fair value of the common units received was estimated based on the market price of NCM, Inc.NCMI common stock at the time the common units were determined, adjusted for volatility associated with the estimated time period it would take to convert the common units and register the respective shares.  The deferred revenue will be recognized over the remaining term of the ESA, which is approximately 19 years.

As of SeptemberJune 30, 2017,2020, the Company owned a total of 27,871,86240,850,068 common units of NCM, representing an ownership interest of approximately 18%25%. TheEach of the Company’s common units in NCM is convertible into 1 share of NCM, Inc. common stock.  As of June 30, 2020, the estimated fair value of the Company’s investment in NCM was approximately $194,546$121,325 based on NCM, Inc.’s stock price as of SeptemberJune 30, 20172020 of $6.98$2.97 per share (Level 1 input as defined in FASB ASC Topic 820), which was less thanbelow the Company’s carrying value of $204,347.$258,706.  The market value of NCM, Inc.’s stock price may vary due to the performance of the business, industry trends, general and economic conditions and other factors, including those resulting from the impact of COVID-19 (see Note 2).  The Company does not believe that the decline in NCM, Inc.’s stock price is other than temporaryas the Company and therefore, noother industry participants, who are also members of the NCM network, are planning to reopen theatres over the next few months, and the Company expects industry attendance to recover gradually over time.  Therefore, 0 impairment of the Company’s investment in NCM was recorded during the ninesix months ended June 30, 2020.  

Exhibitor Services Agreement

As discussed above, the Company’s domestic theatres are part of the in-theatre digital network operated by NCM under the ESA. NCM provides advertising to the Company’s theatres through its branded “Noovie” pre-show entertainment program and also handles lobby promotions and displays for our theatres.  The Company receives a monthly theatre access fee for participation in the NCM network and also earns screen advertising revenue on a per patron basis.   Prior to September 30, 2017.17, 2019, the ESA was accounted for under ASC Topic 606, Revenue from Contracts with Customers.  Effective September 17, 2019, the Company signed an amendment to the ESA, under which the Company will provide incremental advertising time to NCM and has extended the term through February 2041.  Subsequent to the amendment, the ESA is accounted for as a lease under ASC Topic 842.  The market valueCompany leases nonconsecutive periods of use of its domestic theatre screens to NCM Inc.’s stock price may changefor purposes of showing third party advertising content.  The lease requires variable lease payments based on the number of patrons attending the showtimes during which such advertising is shown.  The screen advertising revenues earned under the ESA, both before and after the amendment, are reflected in other revenue on the condensed consolidated income statement.  

The recognition of revenue related to the NCM screen advertising advances will be recorded on a straight-line basis through February 2041.

 

 

Twelve Months Ended June 30,

 

 

 

 

 

 

 

 

 

Remaining Maturity

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

 

Total

 

NCM screen advertising advances

 

$

7,997

 

 

$

8,549

 

 

$

9,141

 

 

$

9,774

 

 

$

10,453

 

 

$

302,273

 

 

$

348,187

 

Significant Financing Component

Prior to the September 17, 2019 amendment of the ESA, the Company applied a significant financing component, as required by ASC Topic 606, due to the performancesignificant length of time between receiving the NCM screen advertising advances (the $174,000 received at the NCMI IPO and the periodic common unit adjustments) and completion of the business, industry trends, generalperformance obligation. Effective September 17, 2019, upon the Company’s evaluation and determination that ASC Topic 842 applies to the amended ESA, the Company determined it acceptable to apply the significant financing component guidance from ASC Topic 606 by analogy as the economic conditionssubstance of the agreement represents a financing arrangement. As a result of the significant financing component, the Company recognized incremental screen rental revenue and other factors.  an offsetting interest expense of $15,612 and $11,825, respectively, during the six months ended June 30, 2020. The interest expense was calculated using the Company’s incremental borrowing rates at the time when the cash and each tranche of common units were received from NCM, which ranged from 4.4% to 8.3%.

13


21


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

NCM Financial Information

Below is summary financial information for NCM for the three and six months ended June 29, 2017 (the financial information for the three and nine months ended September 28, 2017 is not yet available) and the three and nine months ended September 29, 2016:periods indicated:

 

 

Three Months Ended

 

 

Three Months ended

 

 

Six Months ended

 

 

Six Months ended

 

 

 

June 25, 2020

 

 

June 27, 2019

 

 

June 25, 2020

 

 

June 27, 2019

 

Gross revenues

 

$

4,000

 

 

$

110,200

 

 

$

68,700

 

 

$

187,100

 

Operating income (loss)

 

$

(23,800

)

 

$

37,700

 

 

$

(18,900

)

 

$

48,600

 

Net income (loss)

 

$

(37,800

)

 

$

23,500

 

 

$

(46,400

)

 

$

20,600

 

 

 

 

Three Months

 

 

Six Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

Ended

June 29, 2017

 

 

June 29, 2017

 

 

September 29, 2016

 

 

September 29, 2016

 

Gross revenues

 

$

97,042

 

 

$

168,962

 

 

$

113,476

 

 

$

305,101

 

Operating income

 

$

28,430

 

 

$

33,500

 

 

$

48,481

 

 

$

100,911

 

Net income

 

$

15,377

 

 

$

7,465

 

 

$

23,909

 

 

$

49,619

 

 

 

As of

 

 

As of

 

 

 

June 25, 2020

 

 

December 26, 2019

 

Current assets

 

$

197,700

 

 

$

185,400

 

Noncurrent assets

 

$

700,900

 

 

$

706,600

 

Current liabilities

 

$

46,700

 

 

$

125,500

 

Noncurrent liabilities

 

$

1,074,600

 

 

$

947,800

 

Members deficit

 

$

(222,700

)

 

$

(181,300

)

 

 

7.10.

Other Investments

Below is a summary of activity for each of the Company’s other investments for the ninesix months ended SeptemberJune 30, 2017:2020:

 

 

 

DCIP

 

 

AC JV,

LLC

 

 

DCDC

 

 

Other

 

 

Total

 

Balance at January 1, 2017

 

$

87,819

 

 

$

5,980

 

 

$

2,750

 

 

$

1,768

 

 

$

98,317

 

Cash contributions

 

 

1,109

 

 

 

 

 

 

 

 

 

68

 

 

 

1,177

 

Cash distributions

 

 

(5,212

)

 

 

 

 

 

 

 

 

 

 

 

(5,212

)

Equity in income

 

 

16,820

 

 

 

996

 

 

 

853

 

 

 

 

 

 

18,669

 

Equity in other comprehensive income

 

 

92

 

 

 

 

 

 

 

 

 

 

 

 

92

 

Other

 

 

 

 

 

 

 

 

 

 

 

(165

)

 

 

(165

)

Balance at September 30, 2017

 

$

100,628

 

 

$

6,976

 

 

$

3,603

 

 

$

1,671

 

 

$

112,878

 

 

 

DCIP

 

AC JV,

LLC

 

DCDC

 

FE Concepts

 

Other

 

Total

 

Balance at January 1, 2020

 

$

124,696

 

$

5,022

 

$

3,169

 

$

19,519

 

$

2,879

 

$

155,285

 

Cash distributions received

 

 

(10,383

)

 

 

 

(878

)

 

 

 

 

 

(11,261

)

Equity in income (loss)

 

 

(11,569

)

 

43

 

 

(705

)

 

(719

)

 

 

 

(12,950

)

Other

 

 

50

 

 

 

 

 

 

 

 

6

 

 

56

 

Balance at June 30, 2020

 

$

102,794

 

$

5,065

 

$

1,586

 

$

18,800

 

$

2,885

 

$

131,130

 

 

Digital Cinema Implementation Partners LLC (“DCIP”)

On February 12, 2007, the Company, AMC and Regal (the “Exhibitors”) entered into a joint venture known as DCIP to facilitate the implementation of digital cinema in the Company’s theatres and to establish agreements with major motion picture studios for the financing of digital cinema. On March 10, 2010, DCIP and its subsidiaries completed an initial financing transaction to enable the purchase, deployment and leasing of digital projection systems to the Exhibitors under equipment lease and installation agreements.  On March 31, 2011, DCIP obtained incremental financing necessary to complete the deployment of digital projection systems.  DCIP also entered into long-term Digital Cinema Deployment Agreements (“DCDAs”) with 6 major motion picture studios pursuant to which Kasima LLC, one of DCIP’s subsidiaries, receives a virtual print fee ("VPF") each time the studio books a film or certain other content on the leased digital projection systems. Other content distributors entered into similar DCDAs that provide for the payment of VPFs for bookings of the distributor's content on a leased digital projection system.  The DCDAs end on the earlier to occur of (i) the tenth anniversary of the "mean deployment date" for all digital projection systems scheduled to be deployed over a period of up to five years, or (ii) the date DCIP achieves "cost recoupment", each as defined in the DCDAs.  Cost recoupment occurs when revenues attributable to the digital projection systems exceed the financing, deployment, administration and other costs associated with the purchase of the digital projection systems.  DCIP expects cost recoupment to occur during 2021. The timing of cost recoupment is dependent on VPF payments from studios. Pursuant to the operating agreement between the Exhibitors and DCIP, DCIP began to distribute excess cash to the Exhibitors upon the payoff of its outstanding debt, which occurred during the year ended December 31, 2019.  

As of SeptemberJune 30, 2017,2020, the Company had a 33% voting interest in DCIP and a 24.3% economic interest in DCIP. The Company accounts for its investment in DCIP and its subsidiaries under the equity method of accounting.

22


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

Below is summary financial information for DCIP for the three and nine months ended September 30, 2017 and 2016.periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

Gross revenues

 

$

39,961

 

 

$

48,274

 

 

$

132,535

 

 

$

133,675

 

Operating income

 

$

22,702

 

 

$

31,180

 

 

$

80,574

 

 

$

82,369

 

Net income

 

$

19,701

 

 

$

26,949

 

 

$

69,458

 

 

$

67,728

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

Gross revenues

 

$

23

 

 

$

48,007

 

 

$

32,533

 

 

$

85,671

 

Operating income (loss)

 

$

(37,305

)

 

$

30,573

 

 

$

(42,544

)

 

$

50,781

 

Net income (loss)

 

$

(37,966

)

 

$

28,475

 

 

$

(49,106

)

 

$

46,960

 

 

 

As of

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Current assets

 

$

22,163

 

 

$

51,382

 

Noncurrent assets

 

$

496,545

 

 

$

581,547

 

Current liabilities

 

$

56,931

 

 

$

70,515

 

Noncurrent liabilities

 

$

733

 

 

$

190

 

Members' equity

 

$

461,044

 

 

$

562,224

 

 

As of SeptemberJune 30, 2017,2020, the Company had 3,7963,812 digital projection systems being leased under the master equipment lease agreement with Kasima LLC, which is an indirect subsidiary of DCIP and a related party to the Company. The Company had the following transactions with DCIP, reflected in utilities and other costs on the condensed consolidated statements of income, statement, with DCIP during the three and ninesix months ended SeptemberJune 30, 20172020 and 2016:2019:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

 

June 30, 2020

 

 

June 30, 2019

 

 

June 30, 2020

 

 

June 30, 2019

 

Equipment lease payments(1)

 

$

1,452

 

 

$

1,333

 

 

$

4,333

 

 

$

3,864

 

 

$

 

 

$

1,131

 

 

$

1,038

 

 

$

2,252

 

Warranty reimbursements from DCIP

 

$

(2,234

)

 

$

(1,608

)

 

$

(6,141

)

 

$

(4,367

)

 

$

 

 

$

(2,951

)

 

$

(3,123

)

 

$

(5,889

)

Management service fees

 

$

207

 

 

$

207

 

 

$

619

 

 

$

619

 

 

$

 

 

$

152

 

 

$

84

 

 

$

310

 

(1)

The Company negotiated an abatement of lease payments during the temporary closure of its theatres as a result of the COVID-19 pandemic.  The Company did not remeasure its lease liabilities and lease right-of-use assets as a result of these negotiations in accordance with FASB guidance.  See further discussion at Note 4.  

14


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

AC JV, LLC

During December 2013, the Company, Regal, AMC (the “AC Founding Members”) and NCM entered into a series of agreements that resulted in the formation of AC JV, LLC (“AC”), a joint venture that owns “Fathom Events” (consisting of Fathom Events and Fathom Consumer Events) formerly operated by NCM.  The Fathom Events business focuses on the marketing and distribution of live and pre-recorded entertainment programming to various theatre operators, to provide additional programs that augment their feature film schedule. The Fathom Consumer Events business includes live and pre-recordedincluding concerts, featuring contemporary music, opera and symphony, DVD product releases and marketing events, theatrical premieres, Broadway plays, live sporting events and other special events. The Company paid event fees to AC of $9,448$2,258 and $7,808$8,475 for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, which are included in film rentals and advertising costs on the condensed consolidated statements of income.

AC was formed by the AC Founding Members and NCM. NCM, under a contribution agreement, contributed the assets associated with The Company accounts for its Fathom Events division to AC in exchange for 97% ownership of the Class A Units of AC. Under a separate contribution agreement, the Founding Members each contributed cash of approximately $268 to AC in exchange for 1% of the Class A Units of AC. Subsequently,  NCM and the Founding Members entered into a Membership Interest Purchase Agreement, under which NCM sold each of the Founding Members 31% of its Class A Unitsinvestment in AC under the aggregate valueequity method of which was determined to be $25,000, in exchange for a six-year promissory note.  Each of the Founding Members’ promissory notes were originally for $8,333, bear interest at 5% per annum and require annual principal and interest payments. The remaining outstanding balance of the note payable from the Company to NCM as of September 30, 2017 was $4,167.accounting.

Digital Cinema Distribution Coalition

Digital Cinema Distribution Coalition (“DCDC”) is a joint venture among the Company, Universal, Warner Bros., AMC and Regal.  DCDC operates a satellite distribution network that distributes all digital content to U.S. theatres via satellite. The Company has an approximate 14.6% ownership in DCDC. The Company paid approximately $637$208 and $707$508 to DCDC during the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, related to content delivery services provided by DCDC.  These fees are included in film rentals and advertising costs on the condensed consolidated statements of income. The Company accounts for its investment in DCDC under the equity method of accounting.

FE Concepts, LLC

During April 2018, the Company, through its wholly-owned indirect subsidiary CNMK Texas Properties, LLC (“CNMK”), formed a joint venture, FE Concepts, LLC (“FE Concepts”) with AWSR Investments, LLC (“AWSR”), an entity owned by Lee Roy Mitchell and Tandy Mitchell.  FE Concepts operates a family entertainment center that offers bowling, gaming, movies and other amenities that opened during December 2019.  The Company and AWSR each invested approximately $20,000 and each have a 50% voting interest in FE Concepts.  The Company accounts for its investment in FE Concepts under the equity method of accounting.  The Company has a theatre services agreement with FE Concepts under which it provides film booking and equipment monitoring

23


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

services. The Company recorded $10 of theatre services revenue under the agreement during the three and six months ended June 30, 2020.

Additional Considerations

Each of the investments above have been temporarily impacted by the COVID-19 pandemic (see Note 2) due to the temporary closure of theatres across the U.S.  The Company does not believe that any resulting decline in value of the underlying investments is other than temporary as the Company and other industry participants, who also have equity ownership interests in certain of the above investments, are planning to reopen theatres during the next few months, and the Company expects industry attendance to recover gradually over time.

8.11.

Treasury Stock and Share Based Awards

Treasury Stock — Treasury stock represents shares of common stock repurchased or withheld by the Company and not yet retired. The Company has applied the cost method in recording its treasury shares.  Below is a summary of the Company’s treasury stock activity for the ninesix months ended SeptemberJune 30, 2017:2020:

 

 

Number of

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Treasury

 

 

 

 

 

 

Treasury

 

 

 

 

 

 

Shares

 

 

Cost

 

 

Shares

 

 

Cost

 

Balance at January 1, 2017

 

 

4,447,002

 

 

$

73,411

 

Balance at January 1, 2020

 

 

4,711,859

 

 

$

81,567

 

Restricted stock withholdings (1)

 

 

68,523

 

 

 

2,943

 

 

 

94,882

 

 

 

2,798

 

Restricted stock forfeitures

 

 

9,550

 

 

 

 

 

 

27,723

 

 

 

 

Balance at September 30, 2017

 

 

4,525,075

 

 

$

76,354

 

Balance at June 30, 2020

 

 

4,834,464

 

 

$

84,365

 

 

(1)

The Company withheld restricted shares as a result of the election by certain employees to satisfy their tax liabilities upon vesting in restricted stock and restricted stock units.  The Company determined the number of shares to be withheld based upon market values ranging from $33.36$8.03 to $44.44$32.12 per share.

As of SeptemberJune 30, 2017,2020, the Company had no plans to retire any shares of treasury stock.

Restricted Stock – During the ninesix months ended SeptemberJune 30, 2017,2020, the Company granted 237,933535,231 shares of restricted stock to directors and employees. The fair value of the restricted stock granted was determined based on the market value of the Company’s common stock on the dates of grant, which ranged from $38.65$8.39 to $42.37$32.12 per share. The Company assumed forfeiture rates for the restricted stock awards that ranged from 0% to 10% for the restricted stock awards..  The restricted stock grantedawards vest over periods ranging from one to directors vests over a one year service period. The restricted stock granted to employees vests over a four year service period.years. The recipients of restricted stock are entitled to receive non-forfeitable dividends and to vote their respective shares, however, the sale and transfer of the restricted shares is prohibited during the restriction period.

15Below is a summary of restricted stock activity for the six months ended June 30, 2020:

 

 

Shares of

 

 

Weighted

Average

 

 

 

Restricted

 

 

Grant Date

 

 

 

Stock

 

 

Fair Value

 

Outstanding at January 1, 2020

 

 

783,823

 

 

$

37.53

 

Granted

 

 

535,231

 

 

$

25.22

 

Vested

 

 

(307,107

)

 

$

35.58

 

Forfeited

 

 

(27,723

)

 

$

36.11

 

Outstanding at June 30, 2020

 

 

984,224

 

 

$

31.49

 

Unvested restricted stock at June 30, 2020

 

 

984,224

 

 

$

31.49

 

24


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is a summary of restricted stock activity for the nine months ended September 30, 2017:

 

 

Shares of

 

 

Weighted

Average

 

 

 

Restricted

 

 

Grant Date

 

 

 

Stock

 

 

Fair Value

 

Outstanding at January 1, 2017

 

 

606,618

 

 

$

33.51

 

Granted

 

 

237,933

 

 

$

41.94

 

Vested

 

 

(192,152

)

 

$

36.26

 

Forfeited

 

 

(9,550

)

 

$

33.00

 

Outstanding at September 30, 2017

 

 

642,849

 

 

$

35.82

 

Unvested restricted stock at September 30, 2017

 

 

642,849

 

 

$

35.82

 

 

Nine Months Ended

September 30,

 

 

Six Months Ended

June 30,

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Compensation expense recognized during the period

 

$

6,298

 

 

$

6,551

 

 

$

5,403

 

 

$

4,869

 

Fair value of restricted shares that vested during the period

 

$

8,169

 

 

$

14,662

 

 

$

8,700

 

 

$

7,630

 

Income tax benefit recognized upon vesting of restricted stock awards

 

$

2,665

 

 

$

5,555

 

 

$

2,620

 

 

$

1,473

 

 

As of SeptemberJune 30, 2017,2020, the estimated remaining unrecognized compensation expense related to unvested restricted stock awards was $15,335$20,390 and the weighted average period over which this remaining compensation expense will be recognized is approximately twothree years.

Impact of 2020 Restructuring Plan - During June 2020, as part of the Company’s employee-related restructuring actions discussed in Note 2, the vesting period for certain share based awards will be accelerated on a pro-rata basis based upon the grant dates and each employee’s separation date.  The Company considers the accelerated vest of these awards to be a modification under ASC Topic 718 Stock Compensation.  Based on the terms of the severance agreements, the Company estimated the number of awards expected to vest at each employee’s expected separation date and revalued such awards based on the modification date, or the date on which employees were notified of the 2020 Restructuring Plan.  The modification date fair value per share was $15.95.   The Company recorded incremental compensation expense of approximately $521 related to these modifications, which is reflected in restructuring costs on the Company’s condensed consolidated income statement.  

Restricted Stock Units – During the ninesix months ended SeptemberJune 30, 2017,2020, the Company granted restricted stock units representing 175,634436,681 hypothetical shares of common stock to employees. The restricted stock units vest based on a combination of financial performance factors and continued service. The financial performance factors are based on an implied equity value concept that determines an internal rate of return (“IRR”) during the two fiscal year periods ending December 31, 20182021 based on a formula utilizing a multiple of Adjusted EBITDA subject to certain specified adjustments as specified by the Compensation Committee prior to the grant date. The financial performance factors for the restricted stock units have a threshold, target and maximum level of payment opportunity and vest on a prorata basis according to the IRR achieved by the Company during the performance period. If the IRR for the two-year period is at least 7%6%, which is the threshold, one-third of the maximum restricted stock units vest. If the IRR for the two-year period is at least 9.5%8%, which is the target, two-thirds of the maximum restricted stock units vest. If the IRR for the two-year period is at least 13%14%, which is the maximum, 100% of the maximum restricted stock units vest. Grantees are eligible to receive a ratable portion of the common stock issuable if the IRR is within the targets previously noted. Further, as an example, if the Company achieves an IRR equal to 11%, the number of restricted stock units that shall vest will be greater than the target but less than the maximum number that would have vested had the Company achieved the highest IRR.  All restricted stock units granted during 20172020 will vest subject to an additional two-year service requirement and will be paid in the form of common stock if the participant continues to provide services through February 2021, which is the fourth anniversary of the grant date. Restricted stock unit award participants are eligible to receive dividend equivalent payments from the grant date if, and at the time that, the restricted stock unit awards vest.  

Below is a table summarizing the potential number of shares that could vest under restricted stock unit awards granted during the ninesix months ended SeptemberJune 30, 2017 2020at each of the three target levels of financial performance (excluding forfeiture assumptions):

 

 

 

Number of

 

 

 

 

 

 

 

Shares

 

 

Value at

 

 

 

Vesting

 

 

Grant

 

at IRR of at least 7%

 

 

58,545

 

 

$

2,481

 

at IRR of at least 9.5%

 

 

117,089

 

 

$

4,961

 

at IRR of at least 13%

 

 

175,634

 

 

$

7,442

 

 

 

Number of

 

 

 

 

 

 

 

Shares

 

 

Value at

 

 

 

Vesting

 

 

Grant

 

at IRR of at least 6%

 

 

190,707

 

 

$

6,125

 

at IRR of at least 8%

 

 

286,060

 

 

$

9,188

 

at IRR of at least 14%

 

 

436,681

 

 

$

14,026

 

 

25


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

Due to the fact that the IRR for the two-year performance period could not be determined at the time of the 20172020 grant, the Company estimated that the most likely outcome is the achievement of the target IRR level. The fair value of the restricted stock unit

16


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

awards was determined based on the closing price of the Company’s common stock on the date of grant, which was $42.37$32.12 per share. The Company assumed a forfeiture rate of 5% for the restricted stock unit awards. If during the service period, additional information becomes available to lead the Company to believe a different IRR level will be achieved for the two-year performance period, the Company will reassess the number of units that willare expected to vest for the grant and adjust its compensation expense accordingly on a prospective basis over the remaining service period.

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Number of restricted stock unit awards that vested during

   the period

 

 

97,115

 

 

 

213,984

 

Fair value of restricted stock unit awards that vested during

   the period

 

$

4,155

 

 

$

7,260

 

Accumulated dividends paid upon vesting of restricted stock

   unit awards

 

$

313

 

 

$

662

 

Compensation expense recognized during the period

 

$

3,189

 

 

$

3,696

 

Income tax benefit recognized upon vesting of restricted stock

   unit awards

 

$

1,745

 

 

$

3,049

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Number of restricted stock unit awards that vested during the period

 

 

117,500

 

 

 

88,074

 

Fair value of restricted stock unit awards that vested during the period

 

$

3,634

 

 

$

3,550

 

Accumulated dividends paid upon vesting of restricted stock unit awards

 

$

563

 

 

$

375

 

Compensation expense recognized during the period

 

$

3,029

 

 

$

1,777

 

Income tax benefit recognized upon vesting of restricted stock unit awards

 

$

526

 

 

$

170

 

 

As of SeptemberJune 30, 2017,2020, the estimated remaining unrecognized compensation expense related to the outstanding restricted stock unit awards was $8,314.$15,150. The weighted average period over which this remaining compensation expense will be recognized is approximately twothree years. As of SeptemberJune 30, 2017,2020, the Company had restricted stock units outstanding that represented a total of 628,189990,121 hypothetical shares of common stock, net of actual cumulative forfeitures, assuming an IRR of 7,407 units, assuming9.3% was achieved for the 2017 grants, an IRR of 8.6% was achieved for the 2018 grants and the maximum IRR level is achieved for all other grants outstanding.

9.12.

Goodwill and Other Intangible Assets

The Company’s goodwill was as follows:

 

 

 

U.S.

Operating

Segment

 

 

International

Operating

Segment

 

 

Total

 

Balance at January 1, 2017 (1)

 

$

1,164,163

 

 

$

98,800

 

 

$

1,262,963

 

Acquisitions of theatres (2)

 

 

9,878

 

 

 

20,401

 

 

 

30,279

 

Foreign currency translation adjustments

 

 

 

 

 

1,100

 

 

 

1,100

 

Balance at September 30, 2017 (1)

 

$

1,174,041

 

 

$

120,301

 

 

$

1,294,342

 

 

 

U.S.

Operating

Segment

 

 

International

Operating

Segment

 

 

Total

 

Balance at January 1, 2020 (1)

 

$

1,182,853

 

 

$

100,518

 

 

$

1,283,371

 

Foreign currency translation adjustments

 

 

 

 

 

(16,434

)

 

 

(16,434

)

Balance at June 30, 2020 (1)

 

$

1,182,853

 

 

$

84,084

 

 

$

1,266,937

 

 

 

(1)

Balances are presented net of accumulated impairment losses of $214,031 for the U.S. operating segment and $27,622 for the international operating segment.

(2)

Represents preliminary purchase price allocations associated with the acquisitions of theatres.

The Company evaluates goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of the goodwill may not be fully recoverable.  The Company evaluates goodwill for impairment at the reporting unit level and has allocated goodwill to the reporting unit based on an estimate of its relative fair value. Management considers the reporting unit to be each of its nineteen20 regions in the U.S. and seven7 countries internationally with Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala considered one reporting unit (the Company does not have goodwill recorded for all of its international locations).  ForUnder its quantitative goodwill impairment analysis, the year ended December 31, 2016,Company estimates the fair value of each reporting unit and compares it with its carrying value.   Fair value is determined using the market approach, which is the most common valuation approach for the Company’s industry and based on a multiple of cash flows for each reporting unit.  

Due to the temporary closure of the Company’s domestic theatres effective March 17, 2020 and international theatres effective March 18, 2020 as a result of the COVID-19 pandemic (see Note 2), the Company performed a qualitativequantitative goodwill impairment assessment onevaluation for all reporting units in accordance with ASC Topic 350-20-35.  No events or changes in circumstances occurred during the ninethree months ended September 30, 2017 that indicatedMarch 31, 2020 using the carrying valuemarket approach, and an estimated multiple of 8 times cash flows.  During the three months ended March 31, 2020, the Company also performed its quantitative goodwill might exceed its estimated fair value.impairment analysis using the income approach to further validate the results of the assessment under the market approach. Significant

1726


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

judgment, including management’s estimate of the impact of temporary theatre closures and other considerations as a result of COVID-19, is involved in estimating future cash flows and fair value.  The Company’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on projected operating performance of each reporting unit, market transactions and industry trading multiples.  

The Company performed a qualitative assessment of goodwill for each reporting unit as of June 30, 2020, considering the anticipated timing of theatre reopenings on its cash flow estimates, as well as market transactions and industry trading multiples.  Based on its qualitative assessment, no goodwill impairment was recorded during the three months ended June 30, 2020.

Intangible assets consisted of the following:

 

 

Balance at

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

 

 

January 1,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

2017

 

 

Additions (1)

 

 

Amortization

 

 

Other (2)

 

 

2017

 

Intangible assets with finite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount

 

$

99,796

 

 

$

4,453

 

 

$

 

 

$

(1,332

)

 

$

102,917

 

Accumulated amortization

 

 

(64,606

)

 

 

 

 

(3,606

)

 

 

1,162

 

 

 

(67,050

)

Total net intangible assets with finite     lives

 

$

35,190

 

 

$

4,453

 

 

$

(3,606

)

 

$

(170

)

 

$

35,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename

 

 

299,709

 

 

 

 

 

 

 

81

 

 

 

299,790

 

Total intangible assets — net

 

$

334,899

 

 

$

4,453

 

 

$

(3,606

)

 

$

(89

)

 

$

335,657

 

(1)

Amount represents preliminary fair values allocated to intangible assets acquired as part of the acquisitions of theatres.  

 

 

Balance at

January 1, 2020

 

Amortization

 

Other (1)

 

Balance at June 30, 2020

 

Intangible assets with finite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount

 

$

85,007

 

$

 

$

(1,672

)

$

83,335

 

Accumulated amortization

 

 

(63,924

)

 

(2,431

)

 

 

 

(66,355

)

Total net intangible assets with finite lives

 

$

21,083

 

$

(2,431

)

$

(1,672

)

$

16,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename and other

 

 

300,686

 

 

 

 

(551

)

 

300,135

 

Total intangible assets — net

 

$

321,769

 

$

(2,431

)

$

(2,223

)

$

317,115

 

 

(2)(1)

Amounts representAmount primarily represents foreign currency translation adjustments and the write-off of a favorable lease associated with a closed domestic theatre.adjustments.

ForDue to the year ended December 31, 2016,temporary closure of the Company performedCompany’s theatres effective March 18, 2020 as a qualitative assessment for all indefinite-lived tradename assets other than its tradename in Ecuador, for whichresult of the COVID-19 pandemic (see Note 2), the Company performed a quantitative assessment.  Forimpairment evaluation for all definite and indefinite-lived tradename assets during the yearthree months ended DecemberMarch 31, 2016,2020.  Under the quantitative analysis, the Company also performed a quantitative test on its definite-lived tradename associated with certain of its Rave-branded theatres acquired in 2013.  No events or changes in circumstances occurred during the nine months ended September 30, 2017 that indicatedcompared the carrying valuevalues of its tradename assets might exceedto their estimated fair values.  Fair values were estimated by applying an estimated market royalty rate that could be charged for the use of the tradenames to forecasted future revenues, with an adjustment for the present value of such royalties.  Significant judgment, including management’s estimate of the impact of temporary theatre closures and other considerations as a result of COVID-19, was involved in estimating market royalty rates and long-term revenue forecasts.  Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, were based on projected revenue performance and expected industry trends, considering the temporary closure of its theatres.

EstimatedThe Company performed a qualitative impairment analysis on its definite and indefinite-lived intangible assets as of June 30, 2020, considering the anticipated timing of theatre reopenings on its revenue forecasts.  As a result of the qualitative assessment, no impairment of tradename assets was recorded during the three months ended June 30, 2020.

The estimated aggregate future amortization expense for intangible assets is as follows:

 

For the three months ended December 31, 2017

 

$

1,668

 

For the twelve months ended December 31, 2018

 

 

5,964

 

For the twelve months ended December 31, 2019

 

 

5,101

 

For the twelve months ended December 31, 2020

 

 

4,995

 

For the twelve months ended December 31, 2021

 

 

2,444

 

Thereafter

 

 

15,695

 

Total

 

$

35,867

 

For the six months ended December 31, 2020

 

$

2,457

 

For the twelve months ended December 31, 2021

 

 

2,828

 

For the twelve months ended December 31, 2022

 

 

2,674

 

For the twelve months ended December 31, 2023

 

 

2,576

 

For the twelve months ended December 31, 2024

 

 

2,576

 

Thereafter

 

 

3,869

 

Total

 

$

16,980

 

 

10.13.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicateDue to the carrying amounttemporary closure of the assets may not be fully recoverable. See discussionCompany’s theatres effective March 18, 2020 as a result of the Company’sCOVID-19 pandemic (see Note 2), the Company performed a long-lived asset impairment evaluation processfor all theatres during the three months ended March 31, 2020.  The impairment evaluation was based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life.  Significant judgment, including management’s estimate of the impact of temporary theatre closures and other considerations as a result of COVID-19, was involved in “Critical Accounting Policies” in its Annual Report on Form 10-K for the year ended December 31, 2016, filed February 23, 2017.  As noted in the discussion,estimating cash flows and fair value.  Fair value is determined based on a multiple of cash flows, which was six and a half6 times for the evaluations performed during the nine months ended September 30, 2017 and 2016. As of September 30, 2017, the estimated aggregate fair valueperformed.  Management’s estimates, which fall under Level 3 of the long-lived assets impaired during the nine months ended September 30, 2017 was approximately $5,367.

1827


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

U.S. GAAP fair value hierarchy, as defined by FASB ASC Topic 820-10-35, are based on projected operating performance, market transactions and industry trading multiples.

The Company performed a qualitative impairment analysis on its long-lived assetassets as of June 30, 2020, considering the timing of expected theatre reopenings on its estimated cash flows as well as market transactions and industry trading multiples.  As a result of the qualitative assessment, no impairment chargesof long-lived assets was recorded during each of the periods presented are specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre.three months ended June 30, 2020.

Below is a summary of impairment charges for the periods presented:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

U.S. theatre properties

 

$

1,054

 

 

$

406

 

 

$

1,411

 

 

$

1,500

 

International theatre properties

 

 

3,972

 

 

 

 

 

 

8,189

 

 

 

823

 

Impairment of long-lived assets

 

$

5,026

 

 

$

406

 

 

$

9,600

 

 

$

2,323

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

U.S. Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatre properties

 

$

 

 

$

1,044

 

 

$

3,643

 

 

$

2,252

 

Theatre operating lease right-of-use assets

 

 

 

 

 

8,047

 

 

 

5,952

 

 

 

8,047

 

U.S. total

 

 

 

 

 

9,091

 

 

 

9,595

 

 

 

10,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatre properties

 

 

 

 

 

1,775

 

 

 

4,484

 

 

 

6,151

 

Theatre operating lease right-of-use assets

 

 

 

 

 

1,628

 

 

 

2,540

 

 

 

1,628

 

International total

 

 

 

 

 

3,403

 

 

 

7,024

 

 

 

7,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Impairment

 

$

 

 

$

12,494

 

 

$

16,619

 

 

$

18,078

 

 

11.14.

Fair Value Measurements

The Company determines fair value measurements in accordance with FASB ASC Topic 820: Fair Value Measurements (“ASC Topic 820”),820, which establishes a fair value hierarchy under which an asset or liability is categorized based on the lowest level of input significant to its fair value measurement. The levels of input defined by ASC Topic 820 are as follows:

Level 1 – quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date;

Level 2 – other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 – unobservable and should be used to measure fair value to the extent that observable inputs are not available.

The Company did not have any assets orBelow is a summary of liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of June 30, 2020 and December 31, 2016 or September 30, 2017.  

Below is a reconciliation of the beginning and ending balance for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2016:

2019:

 

 

Liabilities (1)

 

 

 

2016

 

Beginning balance - January 1

 

$

373

 

Total loss included in accumulated other comprehensive loss

 

 

71

 

Settlements included in interest expense

 

 

(444

)

Ending balance - September 30

 

$

 

 

 

 

 

Carrying

 

 

Fair Value Hierarchy

 

Description

 

As of,

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Interest rate swap liabilities (1)

 

June 30, 2020

 

$

37,336

 

 

$

 

 

$

37,336

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap liabilities (1)

 

December 31, 2019

 

$

15,995

 

 

$

 

 

$

15,995

 

 

$

 

 

(1)

The Company was previously party to anSee further discussion of interest rate swap agreement, which expired in April 2016.  swaps at Note 7.

The Company uses the market approach for fair value measurements on a nonrecurring basis in the impairment evaluations of its goodwill, intangible assets and long-lived assets (see Note 912 and Note 10)13). See additional explanation of fair value measurement techniques used for long-lived assets, goodwill and intangible assets in “Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2019, filed February 23, 2017.21, 2020.  There were no changes in valuation techniquestechniques.  The Company elected to perform its goodwill impairment evaluation using both the market approach and therethe income approach for the six months ended June 30, 2020. There were no0 transfers in to or out of Level 1, Level 2 or Level 3 during the ninesix months ended SeptemberJune 30, 2017.  2020.

12.15.

Foreign Currency Translation

The accumulated other comprehensive loss account in stockholders’ equity of $242,894$422,092 and $247,013$340,112 as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, primarily includes cumulative foreign currency adjustmentsnet losses of $243,020$389,380 and $247,047,$328,053, respectively,

28


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

from translating the financial statements of the Company’s international subsidiaries.subsidiaries and the cumulative changes in fair value of the Company’s interest rate swap agreements that are designated as hedges.

AllAs of June 30, 2020, all foreign countries where the Company has operations, other than Argentina, are non-highly inflationary, and the local currency is the same as the functional currency in all of the locations. Thus, any fluctuation in the currency results in a cumulative foreign currency translation adjustment recorded to accumulated other comprehensive loss.  

19


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

The Company deemed Argentina to be highly inflationary beginning July 1, 2018.  A highly inflationary economy is defined as an economy with a cumulative inflation rate of approximately 100 percent or more over a three-year period. If a country’s economy is classified as highly inflationary, the financial statements of the foreign entity operating in that country must be remeasured to the functional currency of the reporting entity.  ThereThe financial information of the Company’s Argentina subsidiaries has been a steady devaluation of the Argentine peso relative to theremeasured in U.S. dollardollars in recent years.  The official cumulative inflation rate for Argentina over the last three years has not definitively reached 100 percent and remeasurement is not required.  The Company will continue to monitor the inflation on a quarterly basis to determine whether remeasurement is necessary.  accordance with ASC Topic 830, Foreign Currency Matters, effective beginning July 1, 2018.  

Below is a summary of the impact of translating the SeptemberJune 30, 20172020 and 2019 financial statements of the Company’s international subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Comprehensive

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss) for

 

 

Exchange Rate as of

 

 

Income (Loss) for The

 

 

Exchange Rate as of

 

 

Six Months Ended

 

Country

 

September 30, 2017

 

 

December 31, 2016

 

 

Nine Months Ended September 30, 2017

 

 

June 30, 2020

 

 

December 31, 2019

 

 

June 30, 2020

 

June 30, 2019

 

Brazil

 

 

3.17

 

 

 

3.26

 

 

$

6,700

 

 

 

5.43

 

 

 

4.02

 

 

$

(49,478

)

$

1,664

 

Argentina

 

 

17.70

 

 

 

16.04

 

 

 

(5,918

)

Chile

 

 

821.91

 

 

 

736.86

 

 

 

(8,233

)

 

1,839

 

Colombia

 

 

3,758.90

 

 

 

3,277.14

 

 

 

(2,523

)

 

251

 

Peru

 

 

3.35

 

 

 

3.45

 

 

 

1,133

 

 

 

3.56

 

 

 

3.37

 

 

 

(2,480

)

 

1,389

 

Chile

 

 

640.60

 

 

 

679.09

 

 

 

3,136

 

All other

 

 

 

 

 

 

 

 

 

 

527

 

 

 

 

 

 

 

 

 

 

 

1,387

 

 

537

 

 

 

 

 

 

 

 

 

 

$

5,578

 

 

 

 

 

 

 

 

 

 

$

(61,327

)

$

5,680

 

During the nine months ended September 30, 2017, the Company reclassified $1,551 of cumulative foreign currency translation adjustments, related to a Canadian subsidiary that was liquidated, from accumulated other comprehensive loss to foreign currency exchange gain on the condensed consolidated statement of income.

13.

(1)  

Beginning July 1, 2018, Argentina was deemed highly inflationary.  A gain of $633 and a loss of $299 for the six months ended June 30, 2020 and 2019, respectively, is reflected as foreign currency exchange gain (loss) on the Company’s condensed consolidated statement of income as a result of translating Argentina financial results to U.S. dollars.  

16.

Supplemental Cash Flow Information

 

The following is provided as supplemental information to the condensed consolidated statements of cash flows:

 

 

Nine Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

Cash paid for interest

 

$

58,334

 

 

$

68,552

 

 

$

47,014

 

 

$

47,015

 

Cash paid for income taxes, net of refunds received

 

$

81,271

 

 

$

66,757

 

 

$

5,229

 

 

$

36,831

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in accounts payable and accrued expenses for the

acquisition of theatre properties and equipment (1)

 

$

(5,947

)

 

$

132

 

 

$

1,043

 

 

$

(16,118

)

Theatre properties acquired under capital lease

 

$

30,517

 

 

$

11,292

 

Investment in NCM – receipt of common units (see

Note 6)

 

$

18,363

 

 

$

11,111

 

Interest expense - NCM (see Note 9)

 

$

(11,825

)

 

$

(9,514

)

Investment in NCM – receipt of common units (see Note 9)

 

$

3,620

 

 

$

1,552

 

Dividends accrued on unvested restricted stock unit awards

 

$

(423

)

 

$

(360

)

 

$

(256

)

 

$

(297

)

 

(1)

Additions to theatre properties and equipment included in accounts payable as of SeptemberJune 30, 20172020 and December 31, 20162019 were $34,678$16,034 and $40,625,$14,991, respectively.

14.17.

Segments

The Company manages its international market and its U.S. market as separate reportable operating segments, with the international segment consisting of operations in Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Curacao and Paraguay. Each segment’s revenue is derived from admissions and concession sales and other ancillary revenues. The Company uses Adjusted EBITDA, as shown in the reconciliation table below, as the primary measure of segment profit and loss to evaluate performance and allocate its resources. The Company does not report total assets by segment because that information is not used to evaluate the performance of or allocate resources between segments.

2029


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is a breakdown of selected financial information by reportable operating segment:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

514,376

 

 

$

572,916

 

 

$

1,650,514

 

 

$

1,677,365

 

International

 

 

200,122

 

 

 

199,476

 

 

 

602,116

 

 

 

551,212

 

Eliminations

 

 

(3,750

)

 

 

(3,818

)

 

 

(11,077

)

 

 

(10,730

)

Total revenues

 

$

710,748

 

 

$

768,574

 

 

$

2,241,553

 

 

$

2,217,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

108,854

 

 

$

137,540

 

 

$

402,902

 

 

$

409,018

 

International

 

 

44,818

 

 

 

47,351

 

 

 

133,329

 

 

 

128,915

 

Total Adjusted EBITDA

 

$

153,672

 

 

$

184,891

 

 

$

536,231

 

 

$

537,933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

65,612

 

 

$

75,839

 

 

$

221,604

 

 

$

175,218

 

International

 

 

14,318

 

 

 

22,984

 

 

 

41,126

 

 

 

55,128

 

Total capital expenditures

 

$

79,930

 

 

$

98,823

 

 

$

262,730

 

 

$

230,346

 

The following table sets forth a reconciliation of net income to Adjusted EBITDA:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

38,540

 

 

$

66,126

 

 

$

170,544

 

 

$

179,540

 

Add (deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

24,630

 

 

 

40,926

 

 

 

98,475

 

 

 

106,002

 

Interest expense (1)

 

 

26,317

 

 

 

26,659

 

 

 

79,208

 

 

 

81,980

 

Other income (2)

 

 

(13,168

)

 

 

(14,540

)

 

 

(33,180

)

 

 

(32,510

)

Loss on debt amendments and refinancing

 

 

 

 

 

 

 

 

246

 

 

 

13,284

 

Other cash distributions from equity investees (3)

 

 

2,402

 

 

 

1,391

 

 

 

17,321

 

 

 

9,660

 

Depreciation and amortization

 

 

58,052

 

 

 

54,187

 

 

 

174,545

 

 

 

155,874

 

Impairment of long-lived assets

 

 

5,026

 

 

 

406

 

 

 

9,600

 

 

 

2,323

 

Loss on sale of assets and other

 

 

8,576

 

 

 

6,940

 

 

 

9,464

 

 

 

10,985

 

Deferred lease expenses

 

 

(297

)

 

 

(162

)

 

 

(1,019

)

 

 

(809

)

Amortization of long-term prepaid rents

 

 

551

 

 

 

371

 

 

 

1,540

 

 

 

1,357

 

Share based awards compensation expense

 

 

3,043

 

 

 

2,587

 

 

 

9,487

 

 

 

10,247

 

Adjusted EBITDA

 

$

153,672

 

 

$

184,891

 

 

$

536,231

 

 

$

537,933

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

8,155

 

 

$

747,119

 

 

$

437,457

 

 

$

1,304,917

 

International

 

 

819

 

 

 

214,830

 

 

 

116,992

 

 

 

374,737

 

Eliminations

 

 

 

 

 

(4,193

)

 

 

(1,859

)

 

 

(7,175

)

Total revenues

 

$

8,974

 

 

$

957,756

 

 

$

552,590

 

 

$

1,672,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

(96,252

)

 

$

195,298

 

 

$

(40,180

)

 

$

321,057

 

International

 

 

(21,366

)

 

 

49,440

 

 

 

(11,227

)

 

 

75,935

 

Total Adjusted EBITDA

 

$

(117,618

)

 

$

244,738

 

 

$

(51,407

)

 

$

396,992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

11,028

 

 

$

45,591

 

 

$

36,701

 

 

$

97,930

 

International

 

 

1,788

 

 

 

12,009

 

 

 

10,258

 

 

 

17,239

 

Total capital expenditures

 

$

12,816

 

 

$

57,600

 

 

$

46,959

 

 

$

115,169

 

 

(1)

Includes amortization of debt issue costs.

(2)

Includes interest income, foreign currency exchange gain and equity in income of affiliates and excludes distributions from NCM.

(3)

Includes cash distributions received from equity investees that were recorded as a reduction of the respective investment balances (see Notes 6 and 7).  These distributions are reported entirely within the U.S. operating segment.

21

30


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income (loss)

 

$

(170,816

)

 

$

101,861

 

 

$

(230,238

)

 

$

135,054

 

Add (deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

(98,145

)

 

 

38,182

 

 

 

(101,253

)

 

 

50,099

 

Interest expense (1)

 

 

28,372

 

 

 

24,929

 

 

 

53,038

 

 

 

50,070

 

Other (income) expense, net (2)

 

 

27,004

 

 

 

(6,774

)

 

 

27,173

 

 

 

(15,109

)

Cash distributions from DCIP (3)

 

 

5,222

 

 

 

 

 

 

10,383

 

 

 

5,218

 

Cash distributions from other equity investees (4)

 

 

1,456

 

 

 

5,323

 

 

 

12,901

 

 

 

14,447

 

Depreciation and amortization

 

 

63,581

 

 

 

64,573

 

 

 

128,837

 

 

 

129,035

 

Impairment of long-lived assets

 

 

 

 

 

12,494

 

 

 

16,619

 

 

 

18,078

 

Restructuring costs

 

 

19,538

 

 

 

 

 

 

19,538

 

 

 

 

Loss on disposal of assets and other

 

 

425

 

 

 

1,805

 

 

 

2,330

 

 

 

5,604

 

Non-cash rent expense

 

 

1,424

 

 

 

(1,331

)

 

 

833

 

 

 

(2,150

)

Share based awards compensation expense

 

 

4,321

 

 

 

3,676

 

 

 

8,432

 

 

 

6,646

 

Adjusted EBITDA

 

$

(117,618

)

 

$

244,738

 

 

$

(51,407

)

 

$

396,992

 

(1)

Includes amortization of debt issue costs.

(2)

Includes interest income, amortization of accumulated losses for amended swap agreements, foreign currency exchange gain (loss), equity in income of affiliates and interest expense - NCM and excludes distributions from NCM.

(3)

See discussion of cash distributions from DCIP, which were recorded as a reduction of the Company’s investment in DCIP, at Note 10. These distributions are reported entirely within the U.S. operating segment.

(4)

Includes cash distributions received from equity investees, other than those from DCIP noted above, that were recorded as a reduction of the respective investment balances (see Notes 9 and 10).  These distributions are reported entirely within the U.S. operating segment.

Financial Information About Geographic Areas

Below is a breakdown of selected financial information by geographic area:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

Revenues

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

U.S.

 

$

514,376

 

 

$

572,916

 

 

$

1,650,514

 

 

$

1,677,365

 

 

$

8,155

 

 

$

747,119

 

 

$

437,457

 

 

$

1,304,917

 

Brazil

 

 

81,545

 

 

 

85,051

 

 

 

264,085

 

 

 

231,556

 

 

 

348

 

 

 

89,626

 

 

 

53,316

 

 

 

160,487

 

Other international countries

 

 

118,577

 

 

 

114,425

 

 

 

338,031

 

 

 

319,656

 

 

 

471

 

 

 

125,204

 

 

 

63,676

 

 

 

214,250

 

Eliminations

 

 

(3,750

)

 

 

(3,818

)

 

 

(11,077

)

 

 

(10,730

)

 

 

 

 

 

(4,193

)

 

 

(1,859

)

 

 

(7,175

)

Total

 

$

710,748

 

 

$

768,574

 

 

$

2,241,553

 

 

$

2,217,847

 

 

$

8,974

 

 

$

957,756

 

 

$

552,590

 

 

$

1,672,479

 

 

 

As of

 

 

As of

 

Theatre Properties and Equipment-net

 

September 30, 2017

 

 

December 31, 2016

 

 

June 30, 2020

 

 

December 31, 2019

 

U.S.

 

$

1,392,429

 

 

$

1,306,643

 

 

$

1,367,956

 

 

$

1,436,275

 

Brazil

 

 

194,171

 

 

 

197,896

 

 

 

78,442

 

 

 

118,367

 

Other international countries

 

 

205,006

 

 

 

199,997

 

 

 

156,323

 

 

 

180,605

 

Total

 

$

1,791,606

 

 

$

1,704,536

 

 

$

1,602,721

 

 

$

1,735,247

 

31


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

1518.

Related Party Transactions

The Company manages theatres for Laredo Theatre, Ltd. (“Laredo”). The Company is the sole general partner and owns 75% of the limited partnership interests of Laredo. Lone Star Theatres, Inc. owns the remaining 25% of the limited partnership interests in Laredo and is 100% owned by Mr. David Roberts, Lee Roy Mitchell’s son-in-law. Lee Roy Mitchell is the Company’s Chairman of the Board of Directors and directly and indirectly owns approximately 9%8% of the Company’s common stock. Under the agreement, management fees are paid by Laredo to the Company at a rate of 5% of annual theatre revenues up to $50,000 and 3% of annual theatre revenues in excess of $50,000. The Company recorded $451$114 and $410$364 of management fee revenues during the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively. All such amounts are included in the Company’s condensed consolidated financial statements with the intercompany amounts eliminated in consolidation.

The Company has an Aircraft Time Sharing Agreement with Copper Beech Capital, LLC (“Copper Beech”) to use, on occasion, a private aircraft owned by Copper Beech Capital, LLC.Beech. Copper Beech Capital, LLC is owned by Mr. Mitchell and his wife, Tandy Mitchell. The private aircraft is used by Mr. Mitchell and other executives who accompany Mr. Mitchell to business meetings for the Company. The Company reimburses Copper Beech Capital, LLC for the actual costs of fuel usage and the expenses of the pilots, landing fees, storage fees and similar expenses incurred during the trip.  For the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, the aggregate amounts paid to Copper Beech Capital, LLC for the use of the aircraft was $89$12 and $94,$67, respectively.

The Company leases 14 theatres and one1 parking facility from Syufy Enterprises, LP (“Syufy”) or affiliates of Syufy. Raymond Syufy is one of the Company’s directors and is an officer of the general partner of Syufy. Of these 15 leases, 14 have fixed minimum annual rent. The one1 lease without minimum annual rent has rent based upon a specified percentage of gross sales as defined in the lease. For the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, the Company paid total rent of approximately $18,844$10,542 and $17,806,$14,356, respectively, to Syufy.

16.

Commitments and Contingencies

Joseph Amey, et al. v. Cinemark USA, Inc., Case No. 3:13cv05669, In  The Company negotiated a deferral of rent payments for April, May and June of 2020 for 4 of the United States District Court14 leased theatres to be paid back over the months of July through December of 2020.  The Company did not remeasure its lease liabilities and lease right-of-use assets as a result of these negotiations in accordance with FASB guidance.  See further discussion at Note 4.  

The Company has a 50% voting interest in FE Concepts, a joint venture with AWSR, an entity owned by Lee Roy Mitchell and Tandy Mitchell.  FE Concepts operates a family entertainment center that offers bowling, gaming, movies and other amenities that opened during December 2019.  See Note 10 for further discussion. The Company has a theatre services agreement with FE Concepts under which the Company receives management fees for providing film booking and equipment monitoring services for the Northern District of California, San Francisco Division. The case presents putative class action claims for damages and attorney’s fees arising from employee wage and hour claims under California law for alleged meal period, rest break, reporting time pay, unpaid wages, pay upon termination, and wage statements violations. The claims are also asserted as a representative action under the California Private Attorney General Act (“PAGA”).facility. The Company deniesrecorded $10 of management fees during the claims, denies that class certification is appropriate and denies that a PAGA representative action is appropriate, and is vigorously defending against the claims. The Company denies any violation of law and plans to vigorously defend against all claims. The Court recently determined that class certification is not appropriate and determined that a PAGA representative action is not appropriate. The plaintiff has appealed these rulings. The Company is unable to predict the outcome of this litigation or the range of potential loss.six months ended June 30, 2020.

22


32


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

19.

Commitments and Contingencies

From time to time, the Company is involved in various legal proceedings arising from the ordinary course of its business operations, such as personal injury claims, employment matters, patent claims, landlord-tenant disputes, contractual disputes with landlords over certain termination rights or the right to discontinue rent payments due to the COVID-19 pandemic and other contractual disputes, some of which are covered by insurance. The Company believes its potential liability with respect to proceedings currently pending is not material, individually or in the aggregate, to the Company’s financial position, results of operations and cash flows.  

Intertrust Technologies Corporation (“Intertrust”) v. Cinemark Holdings, Inc., Regal, AMC, et al.  This case was filed against the Company on August 7, 2019 in the Eastern District of Texas – Marshall Division alleging patent infringement. The Company firmly maintains that the contentions of the Plaintiff are without merit and will vigorously defend itself against the lawsuit. Although the Company does not believe that it has infringed on any of Intertrust’s patents, it cannot predict the outcome of this litigation.

Flagship Theatres of Palm Desert, LLC d/b/a Cinemas Palme D’Or v. Century Theatres, Inc., and Cinemark USA, Inc.; Superior Court of the State of California, County of Los Angeles.Angeles.  Plaintiff in this case alleges that the Company violated California antitrust and unfair competition laws by engaging in “circuit dealing” with various motion picture distributors and tortuouslytortiously interfered with Plaintiff’s business relationships.  Plaintiff seeks compensatory damages, trebling of those damages under California law, punitive damages, injunctive relief, attorneys’ fees, costs and interest.  Plaintiff also alleges that the Company’s conduct ultimately resulted in closure of its theatre in June 2016.  The Company denied the allegations.  In 2008, the Company moved for summary judgment on Plaintiff’s claims, arguing primarily that clearances between the theatres at issue were lawful and that Plaintiff lacked proof sufficient to support certain technical elements of its antitrust claims.  The trial court granted that motion and dismissed Plaintiff’s claims.  Plaintiff appealed and, in 2011, the Court of Appeal reversed, holding, among other things, that Plaintiff’s claims were not about the illegality of clearances but were focused, instead, on “circuit dealing.”  Having re-framed the claims in that manner, the Court of Appeal held that the trial court’s decision to limit discovery to the market where the theatres at issue operated was an error, as “circuit dealing” necessarily involves activities in different markets.  Upon return to the trial court, the parties engaged in additional, broadened discovery related to Plaintiff’s “circuit dealing” claim.  Thereafter, the Company moved again for summary judgment on all of Plaintiff’s claims.  That new motion for summary judgment was pending when, on or about April 11, 2014, the trial court granted the Company’s motion for terminating sanctions and entered a judgment dismissing the case with prejudice.  Plaintiff then appealed that second dismissal, seeking to have the judgment reversed and the case remanded to the trial court.  The Court of Appeal issued a ruling on May 24, 2016, reversing the granting of terminating sanctions and instead imposed a lesser evidentiary and damages preclusion sanction.  The case returned to the trial court on October 6, 2016.  On May 10, 2018, after a five-week jury trial, the jury found no liability on one circuit dealing claim and awarded Plaintiff damages on the other claim, which are tripled for antitrust damage awards.  Plaintiff would also be entitled to certain court costs and to seek at least some portion of its attorney’s fees.  During 2018, the Company recorded a litigation reserve based on the jury award, court costs and attorney’s fees.  The trial court denied a motion for a judgment notwithstanding the verdict and a motion for a new trial. The Company has denied Plaintiff’s allegations and is vigorously defending these claims.  Theappealed the judgment.  Although the Company is unable todenies that it engaged in any form of circuit dealing, it cannot predict the outcome of this litigationits pending motions or the range of potential loss.future appeals.

Civil Investigative Demand. The Company received a Civil Investigative Demand (“CID”) from the Antitrust Division of the United States Department of Justice. The CID relates to an investigation under Sections 1 and 2 of the Sherman Act. The Company also received CIDs from the Antitrust Section of the Office of the Attorney General of the State of Ohio and later from other states regarding similar inquiries under state antitrust laws. The CIDs request the Company to answer interrogatories, and produce documents, or both, related to the investigation of matters including film clearances, potential coordination and/or communication with other major theatre circuits and related joint ventures.  The Company intends to fully cooperate with all federal and state government agencies. Although the Company does not believe that it has violated any federal or state antitrust or competition laws, it cannot predict the ultimate scope, duration or outcome of these investigations.

From time to time, the Company is involved in various other legal proceedings arising from the ordinary course of its business operations, such as personal injury claims, employment matters, landlord-tenant disputes, patent claims and contractual disputes, some of which are covered by insurance. The Company believes its potential liability with respect to proceedings currently pending is not material, individually or in the aggregate, to the Company’s financial position, results of operations and cash flows.

 

 

 


Item 2.  Management’sManagement’s 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.

Recent Developments

The outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry. The social and economic effects are widespread, and the situation continues to evolve.  As a movie exhibitor that operates spaces where patrons gather in close proximity, our business has been, and continues to be, significantly impacted by protective actions taken by governmental authorities to control the spread of the pandemic.  To comply with government mandates, we temporarily closed all of our theatres in the U.S. and Latin America effective March 17, 2020 and March 18, 2020, respectively.  

Because of our focus on maintaining a healthy balance sheet and low leverage, we believe we entered the global COVID-19 crisis in a strong financial position. Even if our theatres remained closed for the remainder of the year, we believe we have sufficient cash to sustain operations into 2021. Nonetheless, the COVID-19 pandemic has had and may continue to have adverse effects on our business, results of operations, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness.

In conjunction with the temporary closure of our theatres in March 2020, we implemented temporary personnel and salary reductions, halted non-essential operating and capital expenditures, suspended our quarterly dividend, negotiated modified timing and/or abatement of contractual payments with landlords and other major suppliers.  

We continue to evaluate availability of new studio content, the status of the COVID-19 pandemic and local government regulations in assessing our reopening plans.  We reopened five of our domestic theatres in June 2020 as part of a test-and-learn strategy to define training, communication, implementation and execution of enhanced health and safety protocols.  These theatres opened to reduced operating hours with library content and “welcome back” pricing for tickets and concession products to encourage patrons to return to the movies.  We expanded this test-and-learn strategy to ten additional theatres on July 31, 2020 to further assess protocols and analyze results in other markets across the U.S.  We are evaluating the timing of our phased reopening of additional theatres, which is subject to the status of the COVID-19 pandemic, local government regulations and availability of new studio content.  We are still evaluating the timing of reopening of our theatres in Latin America.

General Information

We are a leader in the motion picture exhibition industry, with theatres in the U.S., Brazil, Argentina, Chile, Colombia, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Curacao and Paraguay. As of SeptemberJune 30, 2017,2020, we managed our business under two reportable operating segments – U.S. markets and international markets. See Note 1417 to our condensed consolidated financial statements.

We generate revenues primarily from filmed entertainment box office receipts and concession sales with additional revenues from screen advertising sales and other revenue streams, such as transactional fees, vendor marketing promotions, studio trailer placements, meeting rentals and electronic video games located in some of our theatres. NCM provides our domestic theatres with various forms of in-theatre advertising. 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 joint venture, AC JV, LLC. NCM provides our domestic theatres with various forms of in-theatre advertising. Our Flix Media initiative has also allowed us to expand oursubsidiaries provide screen advertising and alternative content withinfor our international circuit and to other international exhibitors.

Films leading the box office during the ninesix months ended SeptemberJune 30, 20172020 included Bad Boys for Life, 1917, Sonic the carryoverHedgehog, Jumanji: The Next Level, Star Wars: Episode IX – The Rise of Rogue One: A Star Wars Story Skywalker, Birds of Prey, Dolittle, Little Women, The Invisible Man andHidden Figures and new releases such as Beauty and the Beast, Wonder Woman, Guardians The Call of the Galaxy Vol. 2, Spider Man: Homecoming, It, Despicable Me 3, Logan, The Fate of the Furious, Dunkirk, The LEGO Batman Movie, Get Out, The Boss Baby, Pirates of the Caribbean: Dead Men Tell No Tales, Kong: Skull Island and other films.Wild. Films currently scheduled for release during the remainder of 20172020 includeJumanji: Welcome to the Jungle Tenet, Wonder Woman 1984, No Time To Die, Black Widow,Soul, West Side Story, Croods 2 andCoco and well-known franchise films such as Star Wars: The Last Jedi, Justice League, Pitch Perfect 3 and Thor: Ragnarok King’s Man, among other films. We note that the films. scheduled for release during the remainder of 2020 could be rescheduled as a result of the COVID-19 pandemic as discussed above and at Note 2 to our condensed consolidated financial statements.  

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. The Company also receives virtual print fees from studios for certain of its international locations, which are included as a contra-expense in film rentals and advertising costs.  Advertising costs, which are expensed as incurred, are primarily related to campaigns for new and renovated theatres, loyalty and membership programs and brand advertising that vary depending on the timing of such campaigns.


Concession supplies expense is variable in nature and fluctuates with our concession revenues.revenues and product mix. 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 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 performance 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 and finance leases and the number of fee-ownedowned theatres.

Utilities and other costs include both fixed and variable costs and primarily consist of utilities, expenses for projection and sound equipment maintenance and monitoring, credit card fees, third party ticket sales commissions, property taxes, janitorial costs, repairs, maintenance and security services.

General and administrative expenses are primarily fixed in nature and consist of the costs to support the overall management of the Company, including salaries and wages, incentive compensation and benefit costs for our corporate office personnel, facility expenses for our corporate offices, consulting fees, legal fees, audit fees, supplies and other costs that are not specifically associated with the operations of our theatres.



Results of Operations

The following table sets forth, for the periods indicated, certain operating data and the percentage of revenues represented by certain items reflected in our condensed consolidated statements of income.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

September 30,

 

 

September 30,

 

 

June 30,

 

 

June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating data (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

425.1

 

 

$

472.9

 

 

$

1,351.5

 

 

$

1,364.8

 

 

$

 

 

$

521.1

 

 

$

292.5

 

 

$

916.6

 

Concession

 

 

247.1

 

 

 

261.4

 

 

 

777.6

 

 

 

752.8

 

 

 

0.1

 

 

 

345.3

 

 

 

190.5

 

 

 

596.6

 

Other

 

 

38.6

 

 

 

34.3

 

 

 

112.5

 

 

 

100.3

 

 

 

8.9

 

 

 

91.4

 

 

 

69.6

 

 

 

159.3

 

Total revenues

 

$

710.8

 

 

$

768.6

 

 

$

2,241.6

 

 

$

2,217.9

 

 

$

9.0

 

 

$

957.8

 

 

$

552.6

 

 

$

1,672.5

 

Cost of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

226.2

 

 

 

249.8

 

 

 

725.6

 

 

 

733.1

 

 

 

0.4

 

 

 

294.7

 

 

 

157.0

 

 

 

504.8

 

Concession supplies

 

 

40.2

 

 

 

41.9

 

 

 

124.1

 

 

 

117.0

 

 

 

2.4

 

 

 

62.7

 

 

 

37.2

 

 

 

105.8

 

Salaries and wages

 

 

87.3

 

 

 

84.4

 

 

 

261.3

 

 

 

243.8

 

 

 

8.8

 

 

 

108.9

 

 

 

96.4

 

 

 

205.0

 

Facility lease expense

 

 

82.0

 

 

 

82.8

 

 

 

248.6

 

 

 

241.9

 

 

 

65.2

 

 

 

89.5

 

 

 

147.4

 

 

 

175.1

 

Utilities and other

 

 

92.4

 

 

 

95.0

 

 

 

271.8

 

 

 

265.5

 

 

 

34.9

 

 

 

122.7

 

 

 

135.4

 

 

 

233.3

 

General and administrative expenses

 

 

36.9

 

 

 

35.3

 

 

 

113.0

 

 

 

109.2

 

 

 

28.0

 

 

 

44.3

 

 

 

69.0

 

 

 

82.3

 

Depreciation and amortization

 

 

58.1

 

 

 

54.2

 

 

 

174.5

 

 

 

155.9

 

 

 

63.5

 

 

 

64.5

 

 

 

128.8

 

 

 

129.0

 

Impairment of long-lived assets

 

 

5.0

 

 

 

0.4

 

 

 

9.6

 

 

 

2.3

 

 

 

 

 

 

12.5

 

 

 

16.6

 

 

 

18.1

 

Loss on sale of assets and other

 

 

8.6

 

 

 

7.0

 

 

 

9.5

 

 

 

11.0

 

Restructuring costs

 

 

19.5

 

 

 

 

 

 

19.5

 

 

 

 

Loss on disposal of assets and other

 

 

0.4

 

 

 

1.8

 

 

 

2.3

 

 

 

5.6

 

Total cost of operations

 

 

636.7

 

 

 

650.8

 

 

 

1,938.0

 

 

 

1,879.7

 

 

 

223.1

 

 

 

801.6

 

 

 

809.6

 

 

 

1,459.0

 

Operating income

 

$

74.1

 

 

$

117.8

 

 

$

303.6

 

 

$

338.2

 

Operating income (loss)

 

$

(214.1

)

 

$

156.2

 

 

$

(257.0

)

 

$

213.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating data as a percentage of total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

 

59.8

%

 

 

61.5

%

 

 

60.3

%

 

 

61.5

%

 

 

0.0

%

 

 

54.4

%

 

 

52.9

%

 

 

54.8

%

Concession

 

 

34.8

%

 

 

34.0

%

 

 

34.7

%

 

 

33.9

%

 

 

1.1

%

 

 

36.1

%

 

 

34.5

%

 

 

35.7

%

Other

 

 

5.4

%

 

 

4.5

%

 

 

5.0

%

 

 

4.6

%

 

 

98.9

%

 

 

9.5

%

 

 

12.6

%

 

 

9.5

%

Total revenues

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Cost of operations (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

53.2

%

 

 

52.8

%

 

 

53.7

%

 

 

53.7

%

 

NM

 

 

 

56.6

%

 

 

53.7

%

 

 

55.1

%

Concession supplies

 

 

16.3

%

 

 

16.0

%

 

 

16.0

%

 

 

15.5

%

 

NM

 

 

 

18.2

%

 

 

19.5

%

 

 

17.7

%

Salaries and wages

 

 

12.3

%

 

 

11.0

%

 

 

11.7

%

 

 

11.0

%

 

NM

 

 

 

11.4

%

 

 

17.4

%

 

 

12.3

%

Facility lease expense

 

 

11.5

%

 

 

10.8

%

 

 

11.1

%

 

 

10.9

%

 

NM

 

 

 

9.3

%

 

 

26.7

%

 

 

10.5

%

Utilities and other

 

 

13.0

%

 

 

12.4

%

 

 

12.1

%

 

 

12.0

%

 

NM

 

 

 

12.8

%

 

 

24.5

%

 

 

13.9

%

General and administrative expenses

 

 

5.2

%

 

 

4.6

%

 

 

5.0

%

 

 

4.9

%

 

NM

 

 

 

4.6

%

 

 

12.5

%

 

 

4.9

%

Depreciation and amortization

 

 

8.2

%

 

 

7.1

%

 

 

7.8

%

 

 

7.0

%

 

NM

 

 

 

6.7

%

 

 

23.3

%

 

 

7.7

%

Impairment of long-lived assets

 

 

0.7

%

 

 

0.1

%

 

 

0.4

%

 

 

0.1

%

 

NM

 

 

 

1.3

%

 

 

3.0

%

 

 

1.1

%

Loss on sale of assets and other

 

 

1.2

%

 

 

0.9

%

 

 

0.4

%

 

 

0.5

%

Restructuring costs

 

NM

 

 

 

%

 

 

3.5

%

 

 

%

Loss on disposal of assets and other

 

NM

 

 

 

0.2

%

 

 

0.4

%

 

 

0.3

%

Total cost of operations

 

 

89.6

%

 

 

84.7

%

 

 

86.5

%

 

 

84.8

%

 

NM

 

 

 

83.7

%

 

 

146.5

%

 

 

87.2

%

Operating income

 

 

10.4

%

 

 

15.3

%

 

 

13.5

%

 

 

15.2

%

Operating income (loss)

 

NM

 

 

 

16.3

%

 

 

(46.5

)%

 

 

12.8

%

Average screen count (month end average)

 

 

5,939

 

 

 

5,880

 

 

 

5,914

 

 

 

5,846

 

 

 

6,087

 

 

 

6,068

 

 

 

6,109

 

 

 

6,057

 

Average operating screen count (month end average)

 

 

5,749

 

 

 

5,785

 

 

 

5,764

 

 

 

5,771

 

Revenues per average screen (dollars)

 

$

119,675

 

 

$

130,710

 

 

$

379,025

 

 

$

379,379

 

Total revenues per average screen (dollars)

 

NM

 

 

$

157,837

 

 

NM

 

 

$

276,123

 

 

(1)

All costs are expressed as a percentage of total revenues, except film rentals and advertising, which are expressed as a percentage of admissions revenues and concession supplies, which are expressed as a percentage of concession revenues.  Certain values are considered not meaningful (“NM”) as they are not comparable due to the theatre closures effective March 18, 2020.


Three months ended SeptemberJune 30, 20172020 versus SeptemberJune 30, 20162019

Revenues. TotalAll of our domestic theatres were temporarily closed effective March 17, 2020 and all of our international theatres were temporarily closed effective March 18, 2020 as a result of the COVID-19 pandemic.  We opened five domestic theatres in late June to test our new health and safety protocols, showing library content. We expanded this test-and-learn strategy to ten additional theatres on July 31, 2020.  We are evaluating the timing of our phased reopening of additional theatres, which is subject to the status of the COVID-19 pandemic, local government regulations and availability of new studio content.  The Company is still evaluating the timing of reopening of its theatres in Latin America.

We offered “welcome back” pricing for movie tickets and concession products to encourage our patrons to return to the movies. During the three months ended June 30, 2020 we had 13 thousand patrons visit our five domestic theatres and generated $37 thousand of admissions revenue and $57 thousand of concession revenues.  Other revenues decreased $57.8 million to $710.8of $8.9 million for the three months ended SeptemberJune 30, 2017 (“third quarter2020 primarily included the amortization of 2017”) from $768.6 milliondeferred NCM screen advertising advances (see Note 9).  Please see below for a summary of our performance for the three months ended SeptemberJune 30, 2016 (“third quarter of 2016”), representing a 7.5% decrease. The table below, presented by reportable operating segment, summarizes our revenue performance and certain key performance indicators for the three months ended September 30, 2017 and 2016.2019.

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Constant

Currency (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

%

Change

 

 

2017

 

 

2016

 

 

%

Change

 

 

2017

 

 

%

Change

 

 

2017

 

 

2016

 

 

%

Change

 

 

2019

 

 

2019

 

 

2019

 

Admissions revenues (1)

 

$

312.3

 

 

$

354.9

 

 

 

(12.0

)%

 

$

112.8

 

 

$

118.0

 

 

 

(4.4

)%

 

$

115.4

 

 

 

(2.2

)%

 

$

425.1

 

 

$

472.9

 

 

 

(10.1

)%

 

$

407.0

 

 

$

114.1

 

 

$

521.1

 

Concession revenues (1)

 

$

181.5

 

 

$

197.5

 

 

 

(8.1

)%

 

$

65.6

 

 

$

63.9

 

 

 

2.7

%

 

$

67.0

 

 

 

4.9

%

 

$

247.1

 

 

$

261.4

 

 

 

(5.5

)%

 

$

274.9

 

 

$

70.4

 

 

$

345.3

 

Other revenues (1)(2)

 

$

16.9

 

 

$

16.7

 

 

 

1.2

%

 

$

21.7

 

 

$

17.6

 

 

 

23.3

%

 

$

22.2

 

 

 

26.1

%

 

$

38.6

 

 

$

34.3

 

 

 

12.5

%

 

$

61.1

 

 

$

30.3

 

 

$

91.4

 

Total revenues (1)(2)

 

$

510.7

 

 

$

569.1

 

 

 

(10.3

)%

 

$

200.1

 

 

$

199.5

 

 

 

0.3

%

 

$

204.6

 

 

 

2.6

%

 

$

710.8

 

 

$

768.6

 

 

 

(7.5

)%

 

$

743.0

 

 

$

214.8

 

 

$

957.8

 

Attendance (1)

 

 

40.6

 

 

 

48.0

 

 

 

(15.4

)%

 

 

26.7

 

 

 

28.2

 

 

 

(5.3

)%

 

 

 

 

 

 

 

 

 

 

67.3

 

 

 

76.2

 

 

 

(11.7

)%

 

 

50.1

 

 

 

30.1

 

 

 

80.2

 

Average ticket price (1)

 

$

7.69

 

 

$

7.39

 

 

 

4.1

%

 

$

4.22

 

 

$

4.18

 

 

 

1.0

%

 

$

4.32

 

 

 

3.3

%

 

$

6.32

 

 

$

6.21

 

 

 

1.8

%

 

$

8.12

 

 

$

3.79

 

 

$

6.50

 

Concession revenues per patron (1)

 

$

4.47

 

 

$

4.11

 

 

 

8.8

%

 

$

2.46

 

 

$

2.27

 

 

 

8.4

%

 

$

2.51

 

 

 

10.6

%

 

$

3.67

 

 

$

3.43

 

 

 

7.0

%

 

$

5.49

 

 

$

2.34

 

 

$

4.31

 

 

(1)

Revenues and attendance amounts in millions.  Average ticket price is calculated as admissions revenues divided by attendance.  Concession revenues per patron is calculated as concession revenues divided by attendance.  

(2)

U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 1417 to our condensed consolidated financial statements.

Cost of Operations. The table below summarizes our theatre operating costs (in millions) by reportable operating segment for the three months ended June 30, 2020 and 2019.

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Constant

Currency (1)

2020

 

 

2020

 

 

2019

 

Film rentals and advertising

 

$

0.2

 

 

$

237.6

 

 

$

0.2

 

 

$

57.1

 

 

$

0.4

 

 

$

0.4

 

 

$

294.7

 

Concession supplies

 

$

1.5

 

 

$

47.0

 

 

$

0.9

 

 

$

15.7

 

 

$

1.0

 

 

$

2.4

 

 

$

62.7

 

Salaries and wages

 

$

3.4

 

 

$

87.4

 

 

$

5.4

 

 

$

21.5

 

 

$

6.8

 

 

$

8.8

 

 

$

108.9

 

Facility lease expense

 

$

59.8

 

 

$

64.7

 

 

$

5.4

 

 

$

24.8

 

 

$

6.7

 

 

$

65.2

 

 

$

89.5

 

Utilities and other

 

$

28.8

 

 

$

89.3

 

 

$

6.1

 

 

$

33.4

 

 

$

7.7

 

 

$

34.9

 

 

$

122.7

 

(3)(1)

Constant currency revenueexpense amounts, which are non-GAAP measurements were calculated using the average exchange rate for the corresponding month for 2016.2019. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time in accordance with U.S. GAAP. Significant changes in foreign currency exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance that excludes the impact of foreign currency fluctuations.

U.S.Admissions revenues decreased $42.6 million primarily due to a 15.4% decrease in attendance, partially offset by a 4.1% increase in average ticket price. The decrease in concession revenues of $16.0 million was primarily due to the 15.4% decrease in attendance, partially offset by an 8.8% increase in concession revenues per patron. The decrease in attendance was due to a weaker slate of films in the third quarter of 2017 compared to the third quarter of 2016, partially offset by the favorable impact of luxury lounger conversions and new theatres. The increase in average ticket price was primarily due to price increases. The increase in concession revenues per patron was primarily due to incremental sales, price increases and new theatres.  

International.Admissions revenues decreased $5.2 million as reported primarily due to a 5.3% decrease in attendance, partially offset by a 1.0% increase in average ticket price.  Admissions revenues decreased $2.6 million in constant currency, primarily due to the 5.3% decrease in attendance, partially offset by a 3.3% increase in constant currency average ticket price. Concession revenues increased $1.7 million as reported primarily due to an 8.4% increase in concession revenues per patron, partially offset by the 5.3% decrease in attendance.  Concession revenues increased $3.1 million in constant currency, primarily due to a 10.6% increase in constant currency concession revenues per patron, partially offset by the 5.3% decrease in attendance. The decrease in attendance was driven by a weaker slate of films during the third quarter of 2017 compared to the third quarter of 2016, partially offset by the impact of new theatres.  Average ticket price and concession revenues per patron increased primarily due to price increases, which were predominantly driven by local inflation. Other revenues increased primarily due to incremental screen advertising revenues generated by an expansion of our Flix Media services to affiliates in various countries and increased promotional income.

Cost of Operations. The table below summarizes our theatre operating costs (in millions) by reportable operating segment for the three months ended September 30, 2017 and 2016.

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

Constant

Currency

2017 (1)

 

 

2017

 

 

2016

 

Film rentals and advertising

 

$

171.5

 

 

$

193.6

 

 

$

54.7

 

 

$

56.2

 

 

$

56.2

 

 

$

226.2

 

 

$

249.8

 

Concession supplies

 

 

26.2

 

 

 

28.2

 

 

 

14.0

 

 

 

13.7

 

 

 

14.2

 

 

 

40.2

 

 

 

41.9

 

Salaries and wages

 

 

64.6

 

 

 

63.2

 

 

 

22.7

 

 

 

21.2

 

 

 

23.5

 

 

 

87.3

 

 

 

84.4

 

Facility lease expense

 

 

59.8

 

 

 

60.5

 

 

 

22.2

 

 

 

22.3

 

 

 

22.4

 

 

 

82.0

 

 

 

82.8

 

Utilities and other

 

 

64.0

 

 

 

66.9

 

 

 

28.4

 

 

 

28.1

 

 

 

29.0

 

 

 

92.4

 

 

 

95.0

 

(1)

Constant currency expense amounts, which are non-GAAP measurements were calculated using the average exchange rate for the corresponding month for 2016. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time in accordance with U.S. GAAP. Significant changes in foreign exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance that excludes the impact of foreign currency fluctuations.


U.S. Film rentals and advertising costs were $171.5$0.2 million for the second quarter of 2020, which included film rental on the library content shown in five domestic theatres opened in June as well as adjustments to film rental accruals for film product shown during the first quarter of 2020. Film rentals and advertising costs were $237.6 million, or 54.9%58.4% of admissions revenues, for the thirdsecond quarter of 2017 compared to $193.62019.  Concession supplies expenses of $1.5 million or 54.6% of admissions revenues, for the thirdsecond quarter of 2016. The increase in2020 included the film rentals and advertising rate was primarily due toimpact of the disposal of expired product as a higher box office concentrationresult of top performing films during the third quartertemporary closure of 2017.our theatres.  Concession supplies expense was $26.2$47.0 million, or 14.4%17.1% of concession revenues, for the thirdsecond quarter of 2017 compared to $28.2 million, or 14.3% of concession revenues, for the third quarter of 2016.2019.  

Salaries and wages increaseddecreased to $64.6$3.4 million for the thirdsecond quarter of 2017 from $63.2 million for the third quarter2020 as most of 2016 primarily due to staffing at new and recently remodeledour theatres increases in minimum wages and staffing for food and beverage initiatives.were temporarily closed during this time. Facility lease expense decreased to $59.8 million for the thirdsecond quarter of 20172020 from $60.5$64.7 million for the thirdsecond quarter of 2016 due to decreased percentage rent2019 primarily due to the temporary closure of our theatres and the resulting decline in revenues.percentage rent expense and common area maintenance. Utilities and other costs decreased to $64.0$28.8 million for the thirdsecond quarter of 20172020 from $66.9$89.3 million for the thirdsecond quarter of 2016 primarily due to decreased equipment lease expenses for 3-D presentations.2019, as many of these costs are variable in nature and were impacted by the temporary closure of our domestic theatres.


International. Film rentals and advertising costs were $54.7 million ($56.2 million in constant currency), or 48.5% of admissions revenues, for the third quarter of 2017 compared to $56.2 million, or 47.6% of admissions revenues, for the third quarter of 2016. The increase in the film rental and advertising rate was primarily due to the mix of film product during the third quarter of 2017 compared to the third quarter of 2016 and increased advertising costs during the third quarter of 2017.  Concession supplies expense was $14.0 million ($14.2 million in constant currency), or 21.3% of concession revenues, for the third quarter of 2017 compared to $13.7 million, or 21.4% of concession revenues, for the third quarter of 2016.

International. All of our international theatres were temporarily closed during the second quarter of 2020.  Film rental and advertising costs of $0.2 million for the second quarter of 2020 were primarily advertising expenses incurred during the period.  Film rentals and advertising costs were $57.1 million, or 50.0% of admissions revenues, for the second quarter of 2019. Concessions supplies expenses of $0.9 million for the second quarter of 2020 was a result of the disposal of expired product as a result of the temporary closure of our theatres.  Concession supplies expense was $15.7 million, or 22.3% of concession revenues, for the second quarter of 2019.  

Salaries and wages increaseddecreased to $22.7$5.4 million ($23.56.8 million in constant currency) for the thirdsecond quarter of 20172020 compared to $21.2$21.5 million for the thirdsecond quarter of 2016.2019.  The as reported increasedecrease was due to newthe temporary closure of all of our international theatres and growth in wages as a result of inflation.on March 18, 2020. Facility lease expense decreased to $22.2$5.4 million (increased to $22.4($6.7 million in constant currency) for the thirdsecond quarter of 20172020 compared to $22.3$24.8 million for the thirdsecond quarter of 2016.2019. The as reported decrease was due to decreasedlower percentage rent due to the declinetemporary closure of all of our international theatres on March 18, 2020 and rent-free periods allowed in revenues.certain international locations due to mall closures. Utilities and other costs increaseddecreased to $28.4$6.1 million ($29.07.7 million in constant currency) for the thirdsecond quarter of 20172020 compared to $28.1$33.4 million for the thirdsecond quarter of 2016.  The2019, as reported increase was due to increasesmany of these costs are variable in utility expensesnature and were impacted by the impacttemporary closure of newour theatres.

General and Administrative Expenses.  General and administrative expenses increaseddecreased to $36.9$28.0 million for the thirdsecond quarter of 20172020 from $35.3$44.3 million for the thirdsecond quarter of 2016.2019. The increasedecrease was primarily due to increased salaries, professional feestemporary salary reductions and share based award compensation expense.the furlough of a portion of our corporate office staff as a result of the temporary theatre closures (see Note 2) and the impact of changes in foreign currency exchange rates in certain countries in which we operate.

Depreciation and Amortization. Depreciation and amortization expense increaseddecreased to $58.1$63.5 million during the thirdsecond quarter of 20172020 compared to $54.2$64.5 million during the thirdsecond quarter of 2016. The increase was primarily due to theatre remodels and new theatres.2019.

Impairment of Long-Lived Assets.  We recorded no asset impairment charges on assets held and used during the second quarter of $5.02020 compared to $12.5 million during the thirdsecond quarter of 2017 compared to $0.4 million during the third quarter of 2016.2019. The long-lived asset impairment charges recorded during eachthe second quarter of the periods presented2019 were specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre. Impairment charges for the thirdsecond quarter of 20172019 impacted nine of our twenty-six reporting units.4 countries.  See Note 1013 to our condensed consolidated financial statements.

Restructuring costs. We recorded restructuring costs of $19.5 million during the second quarter of 2020 related to the 2020 Restructuring Plan implemented during the second quarter of 2020.  See Note 2 to our condensed consolidated financial statements for further discussion.

Loss on SaleDisposal of Assets and Other. We recorded a loss on saledisposal of assets and other of $8.6$0.4 million during the thirdsecond quarter of 20172020 compared to $7.0$1.8 million during the thirdsecond quarter of 2016.2019. Activity for the thirdsecond quarter of 20172020 and the third quarter of 20162019 was primarily due to the retirement of assets related to theatre remodels.

Interest Expense.  Interest costs incurred, including amortization of debt issue costs, were $26.3$28.4 million during the thirdsecond quarter of 20172020 compared to $26.7$24.9 million during the thirdsecond quarter of 2016.2019.  The decreaseincrease was primarily due to amendmentsthe issuance of 8.750% senior secured notes on April 20, 2020 and other borrowings during the second quarter of 2020 as discussed in Note 7 to our senior secured credit facility completedcondensed consolidated financial statements.  

Amortization of Accumulated Losses for Amended Swap Agreements. We recorded amortization of the accumulated losses associated with our amended and extended interest rate swap agreements of $2.7 million during June and Decemberthe second quarter of 2016 and June of 2017 which, in the aggregate, reduced the rate2020.  See further discussion at whichNote 7 to our term loan accrues interest by 100 basis points.  condensed consolidated financial statements.  

Distributions from NCM.  We recorded a distributiondistributions from NCM of $2.1$0.7 million during the thirdsecond quarter of 20172020 compared to $1.4$2.1 million recorded during the thirdsecond quarter of 2016,2019, which were in excess of the carrying value of our Tranche 1 investment. See Note 69 to our condensed consolidated financial statements.  

Interest expense – NCM.  We recorded non-cash interest expense of $5.9 million for the second quarter of 2020 compared to $4.7 million recorded during the second quarter of 2019, related to the significant financing component associated with certain of our agreements with NCM.  See Note 9 to our condensed consolidated financial statements for further discussion.  

Equity in Income (Loss) of Affiliates. We recorded equity in loss of affiliates of $(20.1) million during the second quarter of 2020 compared to equity in income of affiliates of $10.9$8.4 million during the thirdsecond quarter of 2017 compared to $12.4 million during the third quarter of 2016.2019. See Notes 69 and 710 to our condensed consolidated financial statements for information about our equity investments.


Income Taxes. IncomeAn income tax expensebenefit of $24.6$(98.1) million was recorded for the thirdsecond quarter of 20172020 compared to $40.9income tax expense of $38.2 million recorded for the thirdsecond quarter of 2016.2019. The effective tax rate was approximately 39.0%36.49% for the thirdsecond quarter of 20172020 compared to


38.2% 27.26% for the thirdsecond quarter of 2016.2019. The effective tax rate for the quarter ended June 30, 2020 was favorably impacted by the projected carryback of 2020 federal tax losses to tax years that had a 35% federal tax rate.  It was also favorably impacted by the projected state net operating loss carryforwards.  Income tax provisions for interim (quarterly) periods are based on estimated annual income tax rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result, the interim rate may vary significantly from the normalized annual rate.

NineSix months ended SeptemberJune 30, 20172020 versus SeptemberJune 30, 20162019

Revenues. All of our domestic theatres were temporarily closed effective March 17, 2020 and all of our international theatres were temporarily closed effective March 18, 2020 as a result of the COVID-19 pandemic.  We opened five domestic theatres in late June to test our new safety protocols, showing library content. We expanded this test-and-learn strategy to ten additional theatres on July 31, 2020 and plan to commence a phased reopening of additional theatres beginning in August, subject to government mandates and release date changes.  We are still evaluating the timing of reopening of our theatres in Latin America.

Total revenues increased $23.7decreased $1,119.9 million to $2,241.6$552.6 million for the ninesix months ended SeptemberJune 30, 20172020 (“the 20172020 period”) from $2,217.9$1,672.5 million for the ninesix months ended SeptemberJune 30, 20162019 (“the 20162019 period”), representing a 1.1% increase.. The table below, presented by reportable operating segment, summarizes our revenue performance and certain key performance indicators orfor the ninesix months ended SeptemberJune 30, 20172020 and 2016.2019.

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

U.S. Operating Segment

 

 

 

International Operating Segment

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Constant

Currency (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Constant

Currency (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

%

Change

 

 

2017

 

 

2016

 

 

%

Change

 

 

2017

 

 

%

Change

 

 

2017

 

 

2016

 

 

%

Change

 

 

2020

 

2019

 

%

Change

 

 

2020

 

2019

 

%

Change

 

 

2020

 

%

Change

 

 

2020

 

2019

 

%

Change

 

Admissions revenues (1)

 

$

1,003.5

 

 

$

1,037.7

 

 

 

(3.3

)%

 

$

348.0

 

 

$

327.1

 

 

 

6.4

%

 

$

336.4

 

 

 

2.8

%

 

$

1,351.5

 

 

$

1,364.8

 

 

 

(1.0

)%

 

$

232.3

 

$

715.8

 

 

(67.5

)%

 

$

60.2

 

$

200.8

 

 

(70.0

)%

 

$

71.1

 

 

(64.6

)%

 

$

292.5

 

$

916.6

 

 

(68.1

)%

Concession revenues (1)

 

$

582.2

 

 

$

575.3

 

 

 

1.2

%

 

$

195.4

 

 

$

177.5

 

 

 

10.1

%

 

$

190.0

 

 

 

7.0

%

 

$

777.6

 

 

$

752.8

 

 

 

3.3

%

 

$

152.8

 

$

474.3

 

(67.8

)%

 

$

37.7

 

$

122.3

 

(69.2

)%

 

$

43.8

 

(64.2

)%

 

$

190.5

 

$

596.6

 

(68.1

)%

Other revenues (1)(2)

 

$

53.8

 

 

$

53.6

 

 

 

0.4

%

 

$

58.7

 

 

$

46.7

 

 

 

25.7

%

 

$

57.2

 

 

 

22.5

%

 

$

112.5

 

 

$

100.3

 

 

 

12.2

%

 

$

50.4

 

$

107.7

 

(53.2

)%

 

$

19.2

 

$

51.6

 

(62.8

)%

 

$

23.6

 

(54.3

)%

 

$

69.6

 

$

159.3

 

(56.3

)%

Total revenues (1)(2)

 

$

1,639.5

 

 

$

1,666.6

 

 

 

(1.6

)%

 

$

602.1

 

 

$

551.3

 

 

 

9.2

%

 

$

583.6

 

 

 

5.9

%

 

$

2,241.6

 

 

$

2,217.9

 

 

 

1.1

%

 

$

435.5

 

$

1,297.8

 

(66.4

)%

 

$

117.1

 

$

374.7

 

(68.7

)%

 

$

138.5

 

(63.0

)%

 

$

552.6

 

$

1,672.5

 

(67.0

)%

Attendance (1)

 

 

130.1

 

 

 

138.0

 

 

 

(5.7

)%

 

 

80.9

 

 

 

83.7

 

 

 

(3.3

)%

 

 

 

 

 

 

 

 

 

 

211.0

 

 

 

221.7

 

 

 

(4.8

)%

 

 

27.9

 

88.8

 

(68.6

)%

 

 

17.9

 

53.7

 

(66.7

)%

 

 

 

 

 

 

 

 

45.8

 

142.5

 

(67.9

)%

Average ticket price (1)

 

$

7.71

 

 

$

7.52

 

 

 

2.5

%

 

$

4.30

 

 

$

3.91

 

 

 

10.0

%

 

$

4.16

 

 

 

6.4

%

 

$

6.41

 

 

$

6.16

 

 

 

4.1

%

 

$

8.33

 

$

8.06

 

3.3

%

 

$

3.36

 

$

3.74

 

(10.2

)%

 

$

3.97

 

6.1

%

 

$

6.39

 

$

6.43

 

(0.6

)%

Concession revenues per patron (1)

 

$

4.48

 

 

$

4.17

 

 

 

7.4

%

 

$

2.42

 

 

$

2.12

 

 

 

14.2

%

 

$

2.35

 

 

 

10.8

%

 

$

3.69

 

 

$

3.40

 

 

 

8.5

%

 

$

5.48

 

$

5.34

 

2.6

%

 

$

2.11

 

$

2.28

 

(7.5

)%

 

$

2.45

 

7.5

%

 

$

4.16

 

$

4.19

 

(0.7

)%

(1)

Revenues and attendance amounts in millions.  Average ticket price is calculated as admissions revenues divided by attendance.  Concession revenues per patron is calculated as concession revenues divided by attendance.  

            patron is calculated as concession revenues divided by attendance.  

(2)

U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 1417 to our condensed consolidated financial statements.

(3)

Constant currency revenue amounts, which are non-GAAP measurements, were calculated using the average exchange rate for the corresponding month for 2016.2019. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time in accordance with U.S. GAAP. Significant changes in foreign currency exchange rates from one period to the next can result in meaningful variations in reported results.   We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance that excludes the impact of foreign currency fluctuations.

U.S.Admissions revenues decreased $34.2 million primarily due to a 5.7% decrease in attendance, partially offset by a 2.5% increase in average ticket price. Concession revenues increased $6.9 million primarily due to a 7.4% increase in concession revenues per patron, partially offset by the 5.7% decrease in attendance. The decrease in attendance was due to a weaker slate of films in the 2017 period compared to the 2016 period, partially offset by the favorable impact of luxury lounger conversions and new theatres. The increase in average ticket price was primarily due to price increases. The increase in concession revenues per patron was primarily due to incremental sales, price increases and new theatres.  

U.S.Admissions revenues decreased $483.5 million primarily due to a 68.6% decrease in attendance, partially offset by a 3.3% increase in average ticket price. The increase in average ticket price was primarily due to price increases, partially offset by the impact of the deferral of admissions revenues for loyalty points issued. Concession revenues decreased $321.5 million primarily due to the 68.6% decrease in attendance, partially offset by a 2.6% increase in concession revenues per patron. Concession revenues per patron grew primarily due to incremental sales of traditional concession products, continued expansion of concession offerings and price increases. Attendance declined primarily due to the temporary closure of all of our U.S. theatres on March 17, 2020.  Other revenues decreased $57.3 million as a result of the temporary closure of theatres.  

International.Admissions revenues increased $20.9 million as reported primarily due to a 10.0% increase in average ticket price, partially offset by a 3.3% decrease in attendance.  Admissions revenues increased $9.3 million in constant currency, primarily due to a 6.4% increase in constant currency average ticket price, partially offset by the 3.3% decrease in attendance. Concession revenues increased $17.9 million as reported primarily due to a 14.2% increase in concession revenues per patron, partially offset by the 3.3% decrease in attendance.  Concession revenues increased $12.5 million in constant currency, primarily due to a 10.8% increase in constant currency concession revenues per patron, partially offset by the 3.3% decrease in attendance. The decrease in attendance was driven by a weaker slate of films during the 2017 period compared to the 2016 period, partially offset by the impact of new theatres.  Average ticket price and concession revenues per patron increased primarily due to price increases, which were predominantly driven by local inflation.  Other revenues increased primarily due to incremental screen advertising revenues generated by an expansion of our Flix Media services to affiliates in various countries and increased promotional income.

International.Admissions revenues decreased $140.6 million as reported ($129.7 million in constant currency). Average ticket price decreased 10.2% as reported (increased 6.1% in constant currency). Concession revenues decreased $84.6 million as reported ($78.5 million in constant currency). Concession revenues per patron decreased by 7.5% as reported (increased 7.5% in constant currency). Average ticket price and concession revenues per patron decreased, as reported, primarily due to the impact of changes in foreign currency exchange rates in certain countries in which we operate, partially offset by price increases.  Attendance declined primarily due to the temporary closure of all of our international theatres on March 18, 2020.  


Cost of Operations. The table below summarizes our theatre operating costs (in millions) by reportable operating segment for the ninesix months ended SeptemberJune 30, 20172020 and 2016.2019.

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Constant

Currency (1)

2020

 

 

2020

 

 

2019

 

Film rentals and advertising

 

$

128.2

 

 

$

406.8

 

 

$

28.8

 

 

$

98.0

 

 

$

34.3

 

 

$

157.0

 

 

$

504.8

 

Concession supplies

 

$

27.1

 

 

$

79.0

 

 

$

10.1

 

 

$

26.8

 

 

$

11.9

 

 

$

37.2

 

 

$

105.8

 

Salaries and wages

 

$

74.6

 

 

$

164.2

 

 

$

21.8

 

 

$

40.8

 

 

$

26.4

 

 

$

96.4

 

 

$

205.0

 

Facility lease expense

 

$

125.2

 

 

$

129.6

 

 

$

22.2

 

 

$

45.5

 

 

$

26.0

 

 

$

147.4

 

 

$

175.1

 

Utilities and other

 

$

103.8

 

 

$

169.1

 

 

$

31.6

 

 

$

64.2

 

 

$

37.9

 

 

$

135.4

 

 

$

233.3

 

 

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

Constant

Currency

2017 (1)

 

 

2017

 

 

2016

 

Film rentals and advertising

 

$

558.3

 

 

$

578.2

 

 

$

167.3

 

 

$

154.9

 

 

$

162.2

 

 

$

725.6

 

 

$

733.1

 

Concession supplies

 

 

82.1

 

 

 

79.9

 

 

 

42.0

 

 

 

37.1

 

 

 

40.8

 

 

 

124.1

 

 

 

117.0

 

Salaries and wages

 

 

194.5

 

 

 

183.1

 

 

 

66.8

 

 

 

60.7

 

 

 

65.9

 

 

 

261.3

 

 

 

243.8

 

Facility lease expense

 

 

181.1

 

 

 

179.7

 

 

 

67.5

 

 

 

62.2

 

 

 

64.9

 

 

 

248.6

 

 

 

241.9

 

Utilities and other

 

 

185.1

 

 

 

188.0

 

 

 

86.7

 

 

 

77.5

 

 

 

84.4

 

 

 

271.8

 

 

 

265.5

 

 

(1)

Constant currency expense amounts, which are non-GAAP measurements were calculated using the average exchange rate for the corresponding month for 2016.2019. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time in accordance with U.S. GAAP. Significant changes in foreign currency exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance that excludes the impact of foreign currency fluctuations.

U.S. Film rentals and advertising costs were $558.3 million, or 55.6% of admissions revenues for the 2017 period compared to $578.2 million, or 55.7% of admissions revenues for the 2016 period. The decrease in the film rentals and advertising rate was primarily due to a higher concentration of blockbuster films during the 2016 period. Concession supplies expense was $82.1 million, or 14.1% of concession revenues, for the 2017 period compared to $79.9 million, or 13.9% of concession revenues, for the 2016

U.S. Film rentals and advertising costs were $128.2 million, or 55.2% of admissions revenues, for the 2020 period compared to $406.8 million, or 56.8% of admissions revenues, for the 2019 period. The decrease in the film rental and advertising rate was a result of typical summer content not being released during the 2020 period as a result of the temporary closure of our theatres on March 17, 2020.  Concession supplies expense was $27.1 million, or 17.7% of concession revenues, for the 2020 period compared to $79.0 million, or 16.7% of concession revenues, for the 2019 period.  The increase in the concession supplies rate was primarily due to the impact of the disposal of perishable food and expired product as a result of the temporary closure of our theatres.

Salaries and wages decreased to $74.6 million for the 2020 period from $164.2 million for the 2019 period primarily due to the impacttemporary closure of all of our expanded concession offerings.

SalariesU.S. theatres on March 17, 2020 and wages increasedthe resulting temporary reduction in headcount. Facility lease expense decreased to $194.5$125.2 million for the 20172020 period from $183.1$129.6 million for the 20162019 period primarily due to staffing at new and recently remodeled theatres, increasesdeclines in minimum wages and staffing for food and beverage initiatives. Facility lease expense increased to $181.1 million for the 2017 period from $179.7 million for the 2016 period due to the impact of new theatres.percentage rent expense. Utilities and other costs decreased to $185.1$103.8 million for the 20172020 period from $188.0$169.1 million for the 20162019 period primarily due to decreases in equipment lease expenses for 3-D presentations, partially offset by increased utilities, repairs and maintenance, and janitorial services expenses.  

International. Film rentals and advertising costs were $167.3 million ($162.2 million in constant currency), or 48.1% of admissions revenues, for the 2017 period compared to $154.9 million, or 47.4% of admissions revenues, for the 2016 period. The increase in the film rentals and advertising rate was primarily due to higher advertising costs during the 2017 period.  Concession supplies expense was $42.0 million ($40.8 million in constant currency), or 21.5% of concession revenues, for the 2017 period compared to $37.1 million, or 20.9% of concession revenues, for the 2016 period. The increase in the concession supplies rate was primarily due to the mixtemporary closure of concession products sold.all of our U.S. theatres on March 17, 2020, as many of these costs are variable in nature.

International. Film rentals and advertising costs were $28.8 million ($34.3 million in constant currency), or 47.8% of admissions revenues, for the 2020 period compared to $98.0 million, or 48.8% of admissions revenues, for the 2019 period. Concession supplies expense was $10.1 million ($11.9 million in constant currency), or 26.8% of concession revenues, for the 2020 period compared to $26.8 million, or 21.9% of concession revenues, for the 2019 period.  The increase in the concession supplies rate was primarily due to the impact of the disposal of perishable food and expired product as a result of temporarily closing our theatres.

Salaries and wages increaseddecreased to $66.8$21.8 million ($65.926.4 million in constant currency) for the 20172020 period compared to $60.7$40.8 million for the 20162019 period.  The as reported increasedecrease was due to newthe temporary reduction in headcount due to the temporary closure of all of our international theatres increased local currency wage rates, limited flexibility in scheduling staff caused by shifting government regulations and the impact of changes in foreign currency exchange rates in certain countries in which we operate.on March 18, 2020. Facility lease expense increaseddecreased to $67.5$22.2 million ($64.926.0 million in constant currency) for 2020 period compared to $45.5 million for the 2019 period. The decrease was due to lower percentage rent due to the temporary closure of all of our international theatres on March 18, 2020 and rent-free periods allowed in certain international locations due to mall closures. Utilities and other costs decreased to $31.6 million ($37.9 million in constant currency) for the 20172020 period compared to $62.2$64.2 million for the 20162019 period due to the temporary closure of all of our international theatres on March 18, 2020, as many of these costs are variable in nature.

General and Administrative Expenses.  General and administrative expenses decreased to $69.1 million for the 2020 period from $82.3 million for the 2019 period. The as reported increasedecrease was primarily due to temporary salary reductions and the furlough of a portion of our corporate office staff as a result of the temporary theatre closures (see Note 2) and the impact of changes in foreign currency exchange rates in certain countries in which we operate and new theatres.  Utilities and other costs increased to $86.7 million ($84.4 million in constant currency) for the 2017 period compared to $77.5 million for the 2016 period.  The as reported increase was due to the impact of changes in foreign currency exchange rates in certain countries in which we operate, increases in repairs and maintenance expenses and utility expenses and the impact of new theatres.    

General and Administrative Expenses. General and administrative expenses increased to $113.0 million for the 2017 period from $109.2 million for the 2016 period. The increase was primarily due to increased salaries and wages, professional fees and the impact of changes in foreign currency exchange rates in certain countries in which we operate, partially offset by a decrease in share based award compensation expense.  .

Depreciation and Amortization.Depreciation and amortization expense was $174.5decreased to $128.8 million forduring the 20172020 period compared to $155.9$129.0 million forduring the 20162019 period. The increase was primarily due to theatre remodels and new theatres.

Impairment of Long-Lived Assets.  We recorded asset impairment charges on assets held and used of $9.6$16.6 million forduring the 20172020 period compared to $2.3$18.1 million forduring the 2016 period.2019 period. The long-lived asset impairment charges recorded during each of the periods presented were specific to theatres that were directly and individually impacted by increased competition, adverse changes in market


demographics or adverse changes in the development or the conditions of the areas surrounding the theatre. The long-lived asset impairment


charges recorded during the 2020 period were also impacted by the temporary closure of our theatres and the associated assumptions related to estimated future cash flows.  Impairment charges for the 20172020 period impacted thirteen of our twenty-six reporting units.four countries and impairment charges for the 2019 period impacted seven countries.  See Note 1013 to our condensed consolidated financial statements.

Loss on Sale of Assets and Other. Restructuring costs.We recorded a loss on salerestructuring costs of assets and other of $9.5$19.5 million during the 20172020 period compared to $11.0 million during the 2016 period. The loss recorded during the 2017 period included the retirement of assets due to theatre remodels and closures, partially offset by gains related to the sale of excess land parcels and a gain on a landlord buyout of a theatre lease.  The loss recorded2020 Restructuring Plan implemented during the 2016 period was primarily related to the retirement of assets due to theatre remodels and closures, partially offset by a gain on the sale of our investment in RealD stock.

Interest Expense.  Interest costs incurred, including amortization of debt issue costs, were $79.2 million for the 2017 period compared to $82.0 million for the 20162020 period.  The decrease was due to the redemption of our previously outstanding $200.0 million 7.375% senior subordinated notes (the “7.375% Senior Subordinated Notes”) funded by a $225.0 million add-on to our 4.875% senior notes (the “4.875% Senior Notes), which occurred on March 21, 2016, as well as amendments to our senior secured credit facility completed during June and December of 2016 and June of 2017, which, in the aggregate, reduced the rate at which our term loan accrues interest by 100 basis points.  

Loss On Debt Amendments and Refinancing.  We recorded a loss of $0.2 million during the 2017 period related to an amendment to our senior secured credit facility that included a reduction in the interest rate at which our term loan accrues interest and revisions to certain definitions within the agreement.  See Note 42 to our condensed consolidated financial statements.  We recorded a loss of $13.3 million during the 2016 period primarily related to the early redemption of our $200.0 million 7.375% Senior Subordinated Notes.  

Foreign Currency Exchange Gain.  We recorded a foreign currency exchange gain of $2.0 million during the 2017 period compared to a foreign currency exchange gain of $2.9 million during the 2016 period. These amounts primarily represent the impact of changes in foreign currency exchange rates on intercompany transactions between our domestic subsidiaries and our international subsidiaries.  See Note 12 to the condensed consolidated financial statements for further discussion.

Loss on Disposal of Assets and Other. We recorded a loss on disposal of assets and other of $2.3 million during 2020 period compared to $5.6 million during the 2019 period. Activity for the 2020 and 2019 periods were primarily due to the retirement of assets related to theatre remodels.  

Interest Expense.  Interest costs incurred, including amortization of accumulated losses associated with debt issue costs, were $53.0 million during the 2020 period compared to $50.1 million during the 2019 period.  The increase was primarily due to the issuance of 8.750% senior secured notes on April 20, 2020 and additional borrowings during the second quarter of 2020 as discussed in Note 7 to our condensed consolidated financial statements.  

Amortization of Accumulated Losses for Amended Swap Agreements. We recorded amortization of our amended and extended interest rate swap agreements of $2.7 million during the 2020 period.  See further discussion at Note 7 to our condensed consolidated financial statements.  

Distributions from NCM.  We recorded distributions from NCM of $11.7$5.9 million during the 20172020 period and $10.1compared to $6.7 million recorded during the 20162019 period, which were in excess of the carrying value of our Tranche 1 investment. See Note 69 to our condensed consolidated financial statements.  

Interest expense – NCM.  We recorded non-cash interest expense of $11.8 million for the 2020 period compared to $9.5 million recorded during the 2019 period, related to the significant financing component associated with certain of our agreements with NCM.  See Note 9 to our condensed consolidated financial statements for further discussion.

Equity in Income (Loss) of Affiliates. We recorded equity in loss of affiliates of $(11.6) million during the 2020 period compared to equity in income of affiliates of $26.8$18.8 million during the 2017 period compared to $24.6 million during the 20162019 period. See Notes 69 and 7 for information about the equity investments10 to our condensed consolidated financial statements.statements for information about our equity investments.

Income Taxes. IncomeAn income tax expensebenefit of $98.5$(101.3) million was recorded for the 20172020 period compared to $106.0income tax expense of $50.1 million recorded for the 20162019 period. The effective tax rate was 36.6%approximately 30.5% for the 20172020 period compared to 37.1%27.1% for the 20162019 period. TaxThe effective tax rate for the six months ended June 30, 2020 was favorably impacted by the projected carryback of 2020 federal tax losses to tax years that had a 35% federal tax rate. It was also favorably impacted by the projected state net operating loss carryforwards.  The effective tax rate was unfavorably impacted by $14.2 million of net discrete tax charges, including a $5.2 million charge related to a valuation allowance recorded against certain foreign net deferred tax assets in Colombia and Central America and $8.9 million related to the remeasurement of deferred tax balances due to a projected net operating loss carryback.  Income tax provisions for interim (quarterly) periods are based on estimated annual income tax rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result, the interim rate may vary significantly from the normalized annual rate.

Liquidity and Capital Resources

Operating Activities

We primarily collect our revenues in cash, mainly through box office receipts and the sale of concessions. In addition, nearly all of our theatres provide the patron a choice of using a credit card, debit card or advanced-sale type certificates such as a gift card, in place of cash. Because ourOur revenues are received in cash prior to the payment of related expenses, therefore we have an operating “float” and historically have not required traditional working capital financing. However, we temporarily closed all of our theatres effective March 18, 2020 and will fund operating expenses while our theatres are closed with cash on hand and additional financing discussed below under Financing Activities.

Cash used for operating activities was $(153.9)million for the six months ended June 30, 2020 compared to cash provided by operating activities of $303.6million for the six months ended June 30, 2019. The decrease in cash provided by operating activities was $311.4 millionprimarily a result of the temporary closure of all of our theatres effective March 18, 2020, the impact of our net loss on current tax accounts and the level and timing of payments to landlords and other vendors during each respective period.  As discussed in Note 4 of our condensed consolidated financial statements, we negotiated the deferral of rent and other lease-related payments for the nine months ended September 30, 2017 compared to $278.3second quarter of 2020 with many of our landlords, resulting in approximately $42.7 million forin deferred lease payments.  We will begin


paying a portion of these deferred lease payments during the nine months ended September 30, 2016.second half of 2020; however, a majority of the repayments will be made during 2021.

Investing Activities

Our investing activities have been principally related to the development, remodel and acquisition of theatres. New theatre openings and acquisitions historically have been financed with internally generated cash and by debt financing, including borrowings under our senior secured credit facility. Cash used for investing activities was $290.1 (46.8) million for the ninesix months ended SeptemberJune 30, 20172020 compared to $230.5 (125.2) million for the ninesix months ended SeptemberJune 30, 2016.2019.  The increasedecrease in cash used for investing activities was primarily due to an increase inthe suspension of non-essential capital expenditures forin response to the remodel of certaintemporary closure of our existing domestic theatres and the acquisition of one theatre in the U.S. and two theatres in Brazil.theatres.  


Capital expenditures for the ninesix months ended SeptemberJune 30, 20172020 and 20162019 were as follows (in millions):

 

Period

 

New

Theatres

 

 

Existing

Theatres (1)

 

 

Total

 

Nine Months Ended September 30, 2017

 

$

42.5

 

 

$

220.2

 

 

$

262.7

 

Nine Months Ended September 30, 2016

 

$

65.6

 

 

$

164.7

 

 

$

230.3

 

Period

 

New Theatres

 

 

Existing Theatres

 

 

Total

 

Six Months Ended June 30, 2020

 

$

9.8

 

 

$

37.2

 

 

$

47.0

 

Six Months Ended June 30, 2019

 

$

29.4

 

 

$

85.8

 

 

$

115.2

 

We operated 534 theatres with 5,977 screens worldwide as of June 30, 2020.  Theatres and screens acquired, built and closed during the three months ended June 30, 2020 were as follows:

 

 

January 1, 2020

 

 

Built

 

 

Closed

 

 

June 30, 2020

 

U.S (42 states)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatres

 

 

345

 

 

 

1

 

 

 

14

 

 

 

332

 

Screens

 

 

4,645

 

 

 

12

 

 

 

135

 

 

 

4,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International (15 countries)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatres

 

 

209

 

 

 

1

 

 

 

8

 

 

 

202

 

Screens

 

 

1,487

 

 

 

14

 

 

 

46

 

 

 

1,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Worldwide

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatres

 

 

554

 

 

 

2

 

 

 

22

 

 

 

534

 

Screens

 

 

6,132

 

 

 

26

 

 

 

181

 

 

 

5,977

 

 

As of June 30, 2020, we had the following signed commitments (costs in millions):

 

 

Theatres

 

 

Screens

 

 

Estimated Cost (1)

 

Remainder of 2020

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

2

 

 

 

16

 

 

$

13.1

 

International

 

 

2

 

 

 

18

 

 

$

5.9

 

Total

 

 

4

 

 

 

34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsequent to 2020

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

10

 

 

 

126

 

 

$

90.4

 

International

 

 

8

 

 

 

63

 

 

$

32.7

 

Total

 

 

18

 

 

 

189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commitments at June 30, 2020

 

 

22

 

 

 

223

 

 

$

142.1

 

 

(1)

The amounts for the nine months ended September 30, 2017 and 2016 include $5.7We expect approximately $23.8 million, $61.2 million, $53.0 million and $3.6$4.1 million respectively,to be paid during the remainder of 2020, during 2021, 2022 and 2023, respectively. The timing of payments is subject to change depending on project or other related to the remodel of our corporate headquarters building in Plano, TX.delays.

Capital expenditures for existing properties in the table above includes the costs of remodeling certain of our existing theatres to include Luxury Loungers and expanded concession offerings.  During the nine months ended September 30, 2017 and 2016, we had an average of 151 and 75 of our domestic screens, respectively, temporarily closed for such remodels.

Our U.S. theatre circuit consisted of 339 theatres with 4,562 screens at September 30, 2017. During the nine months ended September 30, 2017, we built two new theatres with 18 screens, acquired one new theatre with 12 screens and closed three theatres and 27 screens. At September 30, 2017, we had signed commitments to open one new theatre and 10 screens in domestic markets during the remainder of 2017 and open ten new theatres with 106 screens subsequent to 2017. We estimate the remaining capital expenditures for the development of these 116 domestic screens will be approximately $85.0 million.

Our international theatre circuit consisted of 194 theatres with 1,395 screens at September 30, 2017. During the nine months ended September 30, 2017, we built five new theatres with 37 screens and acquired two theatres with 14 screens. At September 30, 2017, we had signed commitments to open one new theatre and six screens in international markets during the remainder of 2017 and open seven new theatres and 34 screens subsequent to 2017. We estimate the remaining capital expenditures for the development of these 40 international screens will be approximately $20.0 million.

Actual expenditures for continued theatre development, remodels and acquisitions are subject to change based upon the availability of attractive opportunities.  We plan to fund capital expenditures for our continued development with cash flow from operations, borrowings under our senior secured credit facility, and proceeds from debt issuances, sale leaseback transactions and/or sales of excess real estate.


Financing Activities

Cash provided by financing activities was $290.7 million for the six months ended June 30, 2020 compared to cash used for financing activities was $114.2of ($93.6) million for the ninesix months ended SeptemberJune 30, 2017 compared2019.  The increase in cash provided by financing activities was primarily due to $111.3the $98.8 million forproceeds from borrowings on the nine months ended September 30, 2016.  Financing activities for the nine months ended September 30, 2016 included the redemption of Cinemark USA, Inc.’s $200.0 million 7.375% Senior Subordinated Notes with proceeds fromCompany’s revolving credit line and the issuance of a $225.0 million add-on8.750% Senior Secured notes on April 20, 2020. In addition, we suspended our dividend due to Cinemark USA, Inc.’s existing 4.875% Senior Notes.the temporary closure of our theatres.

We, at the discretion of the board of directors and subject to applicable law, anticipate paying regular quarterlymay pay dividends on our common stock. The amount, if any, of the dividends to be paid in the future will depend upon our then available cash balance, anticipated cash needs, overall financial condition, loan agreement restrictions as discussed below, future prospects for earnings and cash flows, as well as other relevant factors.  We have suspended our quarterly dividend due to the impact of the COVID-19 pandemic.

We may from time to time, subject to compliance with our debt instruments, purchase our debt securities on the open market depending upon the availability and prices of such securities. Long-term debt consisted of the following as of SeptemberJune 30, 20172020 (in millions):

 

Cinemark USA, Inc. term loan

 

$

660.9

 

 

$

643.0

 

Cinemark USA, Inc. revolving line of credit

 

 

98.8

 

Cinemark USA, Inc. 5.125% senior notes due 2022

 

 

400.0

 

 

 

400.0

 

Cinemark USA, Inc. 4.875% senior notes due 2023

 

 

755.0

 

 

 

755.0

 

Other

 

4.2

 

Cinemark USA, Inc. 8.750% senior secured notes due 2025

 

 

250.0

 

Other debt

 

 

6.1

 

Total long-term debt

 

$

1,820.1

 

 

$

2,152.9

 

Less current portion

 

 

7.1

 

 

 

7.3

 

Subtotal long-term debt, less current portion

 

$

1,813.0

 

 

$

2,145.6

 

Less: Debt discounts and debt issuance costs, net of accumulated amortization

 

 

31.0

 

 

 

28.3

 

Long-term debt, less current portion, net of debt issuance costs

 

$

1,782.0

 

 

$

2,117.3

 

 


As of SeptemberJune 30, 2017,2020, approximately $1.2 million was available for borrowing under the revolving line of credit.

Contractual Obligations

In April 2020, Cinemark USA, Inc. had $100.0issued $250.0 million 8.750% senior secured notes.  Additionally, in available borrowing capacityMay and June 2020, our international subsidiaries in Peru and Colombia borrowed $6.1 million under three separate loan agreements.  Included below is an updated summary of long-term debt obligations and related estimated scheduled interest payment obligations as of June 30, 2020, reflecting these additional obligations. 

 

 

Payments Due by Period

 

 

 

(in millions)

 

 

 

 

 

 

 

Less Than

 

 

 

 

 

 

 

 

 

 

After

 

Contractual Obligations

 

Total

 

 

One Year

 

 

1 - 3 Years

 

 

3 - 5 Years

 

 

5 Years

 

Long-term debt (1)

 

$

2,152.9

 

 

$

7.3

 

 

$

1,272.4

 

 

$

873.2

 

 

$

 

Scheduled interest payments on long-term debt (2)

 

$

365.3

 

 

$

103.0

 

 

$

193.2

 

 

$

69.1

 

 

$

 

(1) Amounts are presented before adjusting for debt issuance costs.

(2) Amounts include scheduled interest payments on its revolving credit line.

Contractual Obligationsfixed rate and variable rate debt agreements.  Estimates for the variable rate interest   payments were based on interest rates in effect on June 30, 2020. The average interest rates in effect on our fixed rate and variable rate debt are 5.0% and 2.0%, respectively, as of June 30, 2020.

There have been no other material changes in our contractual obligations previously disclosed in “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended December 31, 20162019 filed February 23, 2017.21, 2020.

Off-Balance Sheet Arrangements

Other than the operating leases and purchase commitments disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 filed February 23, 2017, weWe do not have any off-balance sheet arrangements.

Senior Secured Credit Facility

Cinemark USA, Inc. has a senior secured credit facility that includes a $700.0 million term loan with a maturity date of May 2022, and a $100.0 million revolving credit line with a maturity date of December 2017 (collectively referred to as the(the “Credit Agreement”).

On May 16, 2016, Cinemark USA, Inc. made a principal pre-payment of $13,451 using Under the proceeds received from the sale of shares of RealD.  In accordance with the terms of theamended Credit Agreement, the pre-payment was applied first to the next fourquarterly principal installments, and second, to the remaining installments pro-rata based on the remaining outstanding principal amount of such installments.  Therefore, quarterly payments of $1.4$1.6 million are due on


the term loan through MarchDecember 31, 2022,2024, with the remaininga final principal payment of $635.3$613.4 million due on May 8, 2022.  The Company did not incur any feesMarch 29, 2025. After giving effect to a letter of credit outstanding as a result of the pre-payment.

On June 13, 2016 and December 15, 2016,30, 2020, Cinemark USA, Inc. amended its Credit Agreement to reducehad no available borrowing capacity on the rate at which the term loan bears interest by 0.25% and then an additional 0.50%, respectively.  On June 16, 2017, Cinemark USA, Inc. amended its Credit Agreement to further reduce the rate at which the term loan bears interest by 0.25% and also to modify certain definitions and other provisions within the Credit Agreement.  revolving credit line.

Interest on the term loan accrues at Cinemark USA, Inc.’s option at: (A) the base rate equal to the greater of (1) the US “Prime Rate” as quoted in The Wall Street Journal or if no such rate is quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin of 1.00%0.75% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin of 2.00%1.75% per annum. Interest on the revolving credit line accrues, at our option, at: (A) a base rate equal to the greater of (1) the US “Prime Rate” as quoted in The Wall Street Journal or if no such rate is quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin that ranges from 1.00%0.50% to 1.75%1.25% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin that ranges from 2.00%1.50% to 2.75%2.25% per annum. The margin of the revolving credit line is determined by the consolidated net senior secured leverage ratio as defined in the Credit Agreement.  

At September 30, 2017, there was $660.9 million outstanding under the term loan and no borrowings outstanding under the revolving credit line. Cinemark USA, Inc. had $100.0 million in available borrowing capacity on the revolving credit line. The average interest rate on outstanding term loan borrowings under the Credit Agreement at September 30, 2017 was approximately 3.3% per annum.

Cinemark USA, Inc.’s obligations under the Credit Agreement are guaranteed by Cinemark Holdings, Inc. and certain of Cinemark USA, Inc.’s domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of Cinemark USA, Inc.’s and the guarantors’ personal property, including, without limitation, pledges of all of Cinemark USA, Inc.’s capital stock, all of the capital stock of certain of Cinemark USA, Inc.’s domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries.

The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.’s ability, and in certain instances, its subsidiaries’ and our ability, to consolidate or merge or liquidate, wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay dividends or repurchase stock; and make capital expenditures and investments. If Cinemark USA, Inc. has borrowings outstanding on the revolving credit line, it is required to satisfy a consolidated net senior secured leverage ratio covenant as defined in the Credit Agreement.Agreement, not to exceed 4.25 to 1.  As of June 30, 2020, the actual ratio was approximately 1.9 to 1.

The dividend restriction contained in the Credit Agreement prevents the Company and any of its subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) the Company is not in default, and the distribution would not cause Cinemark USA, Inc. to be in default, under the Credit Agreement; and (2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made since December 18, 2012, including dividends declared by the


board of directors, is less than the sum of (a) the aggregate amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity since December 18, 2012, (b) Cinemark USA, Inc.’s consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the Credit Agreement, and (c) certain other defined amounts. As of SeptemberJune 30, 2017,2020, Cinemark USA, Inc. could have distributed up to approximately $2,551.2$3,081 million (the “Applicable Amount”) to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the Credit Agreement, subject to its available cash and other borrowing restrictions outlined in the agreement.

On April 17, 2020, in conjunction with the issuance of the 8.750% Secured Notes discussed below, we obtained a waiver of the maintenance covenant from the majority of revolving lenders under the Credit Agreement for the fiscal quarters ending September 30, 2020 and December 31, 2020.  The waiver is subject to certain liquidity thresholds, restrictions on investments and the use of the Applicable Amount.

We have four interest rate swap agreements that are used to hedge a portion of the interest rate risk associated with the variable interest rates on the term loan outstanding under the Credit Agreement. See Note 7 of our condensed consolidated financial statements for discussion of the interest rate swaps.

At June 30, 2020, there was $643.0 million outstanding under the term loan, $98.8 million of borrowings were outstanding under the $100.0 million revolving line of credit and approximately $1.2 million was available for borrowing under the revolving credit line.  On April 3, 2020, a letter of credit was cancelled and was no longer outstanding.   The average interest rate on outstanding term loan borrowings under the Credit Agreement at June 30, 2020 was approximately 3.4% per annum, after giving effect to the interest rate swap agreements discussed above.  The average interest rate on the outstanding revolver borrowings was 1.8% at June 30, 2020.

Cinemark USA, Inc. 5.125% Senior Notes

On December 18, 2012, Cinemark USA, Inc. issued $400.0 million aggregate principal amount of 5.125% senior notesSenior Notes due 2022, at par value (the “5.125% Senior Notes”). Interest on the 5.125% Senior Notes is payable on June 15 and December 15 of each year, beginning June 15, 2013.year. The 5.125% Senior Notes mature on December 15, 2022.

The indenture to the 5.125% Senior Notes contains covenants including limitations onthat limit, among other things, the amountability of dividends that could be paid by Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other


distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of SeptemberJune 30, 2017,2020, Cinemark USA, Inc. could have distributed up to approximately $2,529.3$3,198 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 5.125% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture governing the 5.125% Senior Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 5.125% Senior Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indenture governing the 5.125% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of SeptemberJune 30, 20172020 was approximately 5.9 3.2 to 1.

Cinemark USA, Inc. 4.875% Senior Notes

On May 24, 2013, Cinemark USA, Inc. issued $530.0 million aggregate principal amount of the 4.875% Senior Notes due 2023, at par value (the “4.875% Senior Notes”). On March 21, 2016, Cinemark USA, Inc. issued an additional $225.0 million aggregate principal amount of the 4.875% Senior Notes at 99.0% of the principal amount plus accrued and unpaid interest from December 1, 2015. Proceeds, after payment of fees, were used to finance the redemption of Cinemark, USA, Inc.’s $200.0 million 7.375% Senior Subordinated Notes, as discussed below. These additional notes have identical terms, other than the issue date, the issue price and the first interest payment date, and constitute part of the same series as the Company’s existing 4.875% Senior Notes.  Interest on the 4.875% Senior Notes is payable on June 1 and December 1 of each year.  The 4.875% Senior Notes mature on June 1, 2023.  

The indenture to the 4.875% Senior Notes contains covenants that include limitations onlimit, among other things, the amountability of dividends that Cinemark USA, Inc. can pay. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of SeptemberJune 30, 2017,2020, Cinemark USA, Inc. could have distributed up to approximately $2,524.4 $3,191 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 4.875% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture governing the 4.875% Senior Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 4.875% Senior Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indenture governing the 4.875% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of SeptemberJune 30, 20172020 was approximately 5.9 3.2 to 1.

8.750% Secured Notes

On April 20, 2020, the Company issued $250,000 8.750% senior secured notes (the “8.750% Secured Notes”).  The notes will mature on May 1, 2025; provided, however, that if (i) on September 13, 2022, the aggregate outstanding principal amount of the 5.125% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50,000, the notes will mature on September 14, 2022 and (ii) on February 27, 2023, the aggregate outstanding principal amount of the 4.875% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50,000, the notes will mature on February 28, 2023. Interest on the notes will be payable on May 1 and November 1 of each year, beginning on November 1, 2020.  

The 8.750% Secured Notes will be fully and unconditionally guaranteed on a joint and several senior basis by certain of the Company’s subsidiaries that guarantee, assume or in any other manner become liable with respect to any of the Company’s or its guarantors’ other debt. If the Company cannot make payments on the 8.750% Secured Notes when they are due, the Company’s guarantors must make them instead. Under certain circumstances, the guarantees may be released without action by, or the consent of, the holders of the 8.750% Secured Notes.

The 8.750% Secured Notes and the guarantees will be the Company’s and its guarantors’ senior obligations and they will:

rank effectively senior in right of payment to the Company’s and its guarantors’ existing and future debt that is not secured by the collateral as described within the indentures to the 8.750% Secured Notes (“Collateral”), including all obligations under the Credit Agreement, and unsecured obligations, including the existing senior notes, in each case to the extent of the value of the collateral;

rank effectively junior to the Company’s and its guarantors’ existing and future debt secured by assets that are not part of the Collateral to the extent of the value of the collateral securing such debt, including all obligations under the Credit Agreement;

otherwise rank equally in right of payment to the Company’s and its guarantors’ existing and future senior debt, including debt under the Credit Agreement and the existing senior notes;


rank senior in right of payment to the Company’s and its guarantors’ future subordinated debt; and

be structurally subordinated to all existing and future debt and other liabilities of the Company’s non-guarantor subsidiaries.

The indenture to the 8.750% Secured Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. 7.375% Senior Subordinatedand certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. Upon a change of control, as defined in the indenture governing the 8.750% Secured Notes,

On June 3, 2011, Cinemark USA, Inc. issued $200.0 millionwould be required to make an offer to repurchase the 8.750% Secured Notes at a price equal to 101% of the aggregate principal amount of 7.375% Senior Subordinated Notes due 2021, at par value. On March 21, 2016, Cinemark USA, Inc. redeemed the 7.375% Senior Subordinated Notes at a make-whole premium of approximately 104%outstanding plus accrued and unpaid interest, utilizingif any, through the proceeds fromdate of repurchase. The indenture governing the issuance8.750% Secured Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies a coverage ratio specified in the indenture, after giving effect to the incurrence of the additional $225.0 million 4.875% Senior Notes discussed above.  As a resultindebtedness, and in certain other circumstances.  The required minimum coverage ratio is 2.0 to 1 and our actual ratio as of June 30, 2020 was approximately 3.1 to 1.  

Additional Borrowings of International Subsidiaries

During May 2020, our subsidiary in Peru borrowed the redemption, the Company wrote-off approximately $2.4 million in unamortized debt issue costs, paid the make-whole premiumUSD equivalent of approximately $9.4$2.8 million under a 1% loan. Principal payments are due monthly beginning in July 2021 through June 2023.  Accrued and unpaid interest is to be paid other feeswhen principal payments are due.  We are subject to certain customary negative covenants under the loan.  

During May and June 2020, our subsidiary in Colombia borrowed the USD equivalent of $1.2approximately $3.3 million allunder two variable rate loans. Aggregate principal payments are due monthly beginning in December 2020 through May 2023.  Accrued and unpaid interest is to be paid when principal payments are due.  The variable interest rates on the loans ranged from approximately 7.5% to 8.5% as of whichJune 30, 2020.  We are reflected in loss on debt amendments and refinancing duringsubject to certain customary negative covenants under the nine months ended September 30, 2016.  loans.

Covenant Compliance

As of SeptemberJune 30, 2017,2020, we believe we were in full compliance with all agreements, including all related covenants, governing our outstanding debt.

Seasonality

Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most successful motion pictures have been released during the summer, extending from May to July, and during the holiday season, extending from early November through year-end. The unexpected emergence of a hit film during other periods can alter this seasonality trend. The timing of such film releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or for the same period in the following year.

 


Item 3. Quantitative and QualitativeQualitative Disclosures About Market Risk

We have exposure to financial market risks, including changes in interest rates, foreign currency exchange rates and other relevant market prices.  

Interest Rate Risk

We are currently party to a variable rate debt facility.  An increase or decrease in interest rates would affect our interest expense relating to our variable rate debt. At SeptemberJune 30, 2017,2020, we had an aggregate of approximately $660.9$147.9 million of variable rate debt outstanding. Based on the interest rates in effect on the variable rate debt outstanding at SeptemberJune 30, 2017,2020, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $6.6$1.5 million.

The table below provides information about our fixed rate and variable rate long-term debt agreements as of SeptemberJune 30, 2017:2020:

 

 

Expected Maturity for the Twelve-Month Periods Ending September 30,

 

 

Average

 

 

Expected Maturity for the Twelve-Month Periods Ending March 31,

 

 

Average

 

 

(in millions)

 

 

Interest

 

 

(in millions)

 

 

Interest

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

Thereafter

 

 

Total

 

 

Fair Value

 

 

Rate

 

 

2021

 

2022

 

2023

 

2024

 

2025

 

Thereafter

 

Total

 

 

Fair Value

 

 

Rate

 

Fixed rate

 

$

1.4

 

 

$

1.4

 

 

$

1.4

 

 

$

 

 

$

 

 

$

1,155.0

 

 

$

1,159.2

 

 

$

1,177.2

 

 

 

5.0

%

 

$

 

$

 

$

1,155.0

 

$

 

$

850.0

 

$

 

$

2,005.0

 

 

$

1,840.5

 

 

 

5.0

%

Variable rate(1)

 

 

5.7

 

 

 

5.7

 

 

 

5.7

 

 

 

5.7

 

 

 

638.1

 

 

 

 

 

 

660.9

 

 

663.4

 

 

 

3.3

%

 

 

7.3

 

 

9.3

 

 

108.1

 

 

6.6

 

 

16.6

 

 

 

 

147.9

 

 

 

144.0

 

 

 

2.0

%

Total debt

 

$

7.1

 

 

$

7.1

 

 

$

7.1

 

 

$

5.7

 

 

$

638.1

 

 

$

1,155.0

 

 

$

1,820.1

 

 

$

1,840.6

 

 

 

 

 

 

$

7.3

 

$

9.3

 

$

1,263.1

 

$

6.6

 

$

866.6

 

$

 

$

2,152.9

 

 

$

1,984.5

 

 

 

 

 

 

Foreign Currency ExchangeInterest Rate RiskSwap Agreements

Other than the devaluationAll of our interest rate swap agreements qualify for cash flow hedge accounting.  The fair values of the Argentine peso, discussed ininterest rate swaps are recorded on our consolidated balance sheet as an asset or liability with the related gains or losses reported as a component of accumulated other comprehensive loss.  See Note 127 to the condensed consolidated financial statements therefor further discussion of the interest rate swap agreements.

Foreign Currency Exchange Rate Risk

There have been no material changes in foreign currency exchange rate risk previously disclosed in “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 20162019 filed February 23, 2017.21, 2020.

Item 4. Controls and Procedures

Evaluation of the Effectiveness of Disclosure Controls and Procedures

As of SeptemberJune 30, 2017,2020, we carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of SeptemberJune 30, 2017,2020, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred during the quarter ended SeptemberJune 30, 20172020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 


PART II - OTHEROTHER INFORMATION

ThereOther than the discussion at Note 19, there have been no material changes from legal proceedings previously reported under “Business – Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 20162019 filed February 23, 201721, 2020.

Item 1A. Risk Factors

There have been no material changes from risk factors previously disclosedSee discussion in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20162019 filed February 23, 2017.21, 2020, as updated by the information related to COVID-19 below, including the documents incorporated by reference therein.

The COVID-19 pandemic, which has caused us to temporarily close nearly all of our theatres, has had and continues to have adverse effects on our business, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness, including the notes offered hereby, some of which may be significant.

The outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and our industry. The situation continues to be volatile and the social and economic effects are widespread. As a movie exhibitor that operates spaces where patrons gather in close proximity, our business has been, and continues to be, significantly impacted by protective actions taken by governmental authorities to control the spread of the pandemic. To comply with the government mandates at the initial outbreak of the COVID-19 pandemic, we temporarily closed all our theatres in the U.S. and Latin America effective March 17, 2020 and March 18, 2020, respectively. In conjunction with the temporary closure of our theatres in March 2020, we implemented temporary personnel and salary reductions in the U.S., halted non-essential operating and capital expenditures, suspended our quarterly dividend, negotiated modified timing of contractual payments with landlords and other major suppliers, and pursued similar actions in international markets to the extent permitted by local laws. While we have reopened five theatres effective June 19, 2020, our re-opening plans for the remainder of the circuit continues to evolve given the uncertainty with respect to continuing government-mandated closures and the lack of new film content from the film studios. Accordingly, the outbreak of the COVID-19 pandemic continues to have adverse effects on our business. We cannot predict when the effects of the COVID-19 pandemic will subside, our theatres will be allowed to open or our business will return to normal levels after reopening. The longer and more severe the pandemic, including repeat or cyclical outbreaks beyond the one we are currently experiencing, the more severe the adverse effects will be on our business, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness, including the notes offered hereby.

Even when we reopen our theatres, governmental restrictions such as limitations on capacity and food and beverage sales could continue to have significant impact on our business, results of operations, liquidity, cash flows and financial conditions.  Additionally, we cannot guarantee we will recover as rapidly as other industries when the COVID-19 pandemic subsides. For example, once federal, state and local government restrictions are lifted, it is unclear how quickly patrons will return to our theatres, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, among other factors. Even once theatres are reopened, a single case of COVID-19 in a theatre could result in additional costs and further closures. If we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate, we could suffer damage to our reputation, which could adversely affect our business. Furthermore, the effects of the pandemic on our business could be long-lasting and could continue to have adverse effects on our business, results of operations, liquidity, cash flows and financial condition, some of which may be significant, and may adversely impact our ability to operate our business after our temporary closure ends on the same terms as we conducted business prior to the pandemic. Significant impacts on our business caused by the COVID-19 pandemic may include, among others:

lack of availability of new films in the short or long term, including as a result of (i) major film distributors postponing film content indefinitely into the future or releasing scheduled films internationally or on alternative channels or (ii) disruptions of film production;

decreased attendance at our theatres after they reopen, including due to (i) continued safety and health concerns or (ii) a change in consumer behavior in favor of alternative forms of entertainment;

our inability to negotiate favorable rent payment terms with our landlords;

unavailability of employees and/or their inability or unwillingness to work under newly implemented work environment protocols;

increased risks related to employee matters, including increased employment litigation and claims relating to terminations or furloughs caused by theatre closures;

reductions and delays associated with planned operating and capital expenditures;

potential impairment charges;

our inability to generate significant cash flow from operations if our theatres continue to operate at significantly lower than historical levels, which could lead to a substantial increase in indebtedness and negatively impact our ability to comply with the financial covenants, if applicable, in our debt agreements;


our inability to access lending, capital markets and other sources of liquidity, if needed, on reasonable terms, or at all, or obtain amendments, extensions and waivers;

our inability to effectively meet our short- and long-term obligations; and

our inability to service our existing and future indebtedness, including the notes offered hereby.

The outbreak of COVID-19 has also significantly increased economic and demand uncertainty. It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, and it is possible that it could cause a global recession.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section of the Form 10-K as updated by the Current Report on Form 8-K filed on April 13, 2020, including but not limited to those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

While we have elected to take advantage of certain tax-related benefits available under the CARES Act and continue to review and evaluate other available potential benefits under the CARES Act as well as any other current and future legislation enacted into law, we cannot guarantee that we will be eligible for, or be successful in, obtaining any relief under any such law.  If we receive certain government disaster relief assistance, we may be subject to certain requirements imposed by the government on the recipients of the aid including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt, incurrence of additional indebtedness and other similar restrictions until the aid is repaid or redeemed in full. However, we cannot predict the manner in which such benefits will be allocated or administered and cannot predict whether we will be able to access such benefits in a timely manner or at all.


Item 6. Exhibits

 

4.1

Indenture, dated as of April 20, 2020, among Cinemark USA, Inc., the Guarantors named therein and Wells Fargo Bank,

N.A., as trustee and collateral agent, governing the 8.750% senior secured notes issued thereunder (incorporated by

reference to Exhibit 4.1 to Cinemark Holdings, Inc.’s Current Report on Form 8-K, File No. 001-33401, filed on April 20,

2020).

4.2

Form of 8.750% senior secured notes of Cinemark USA, Inc. (contained in the Indenture listed as Exhibit 4.1 above)

(incorporated by reference to Exhibit 4.1 to Cinemark Holdings, Inc.’s Current Report on Form 8-K, File No. 001-33401,

filed on April 20, 2020).

10.1

Eighth Amendment and Waiver to the Amended and Restated Credit Agreement, dated as of April 17, 2020, by and among

Cinemark Holdings, Inc., Cinemark USA, Inc., the several banks and other financial institutions party thereto, Barclays

Bank PLC, as administrative agent, and the other agents party thereto (incorporated by reference to Exhibit 10.1 to

Cinemark Holdings, Inc.’s Current Report on Form 8-K, File No. 001-33401, filed on April 20, 2020).

*31.1

 

Certification of Mark Zoradi, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

*31.2

 

Certification of Sean Gamble, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

*32.1

 

Certification of Mark Zoradi, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

*32.2

 

Certification of Sean Gamble, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

* 101

 

Financial StatementsThe following material from the quarterly report on Form 10-Q of Cinemark Holdings, Inc.’s Form 10-Q for the quarter ended SeptemberJune 30, 2017, filed November 3, 2017,2020, formatted in XBRL:iXBRL (Inline eXtensible Business Reporting Language), filed herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income (Loss), (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements taggedStatements.

* 104

Cover Page Interactive Data File (formatted as detailed text.inline XBRL and contained in Exhibit 101)

 

*

filed herewith.


SIGNATURESSIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

CINEMARK HOLDINGS, INC.

 

 

 

 

Registrant

 

 

 

 

 

DATE:

 

November 3, 2017August 4, 2020

 

 

 

 

 

 

 

 

 

 

 

/s/Mark Zoradi

 

 

 

 

Mark Zoradi

 

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

 

/s/Sean Gamble

 

 

 

 

Sean Gamble

 

 

 

 

Chief Financial Officer

 

 

3751