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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 September 30, 2019

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

 

 

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 every Interactive Data File required to be submitted 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 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,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

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, 2019, 117,148,809 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 September 30, 2019 and December 31, 2018 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

 

Item 2.

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

 

31

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

41

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

41

 

 

 

 

 

PART II.     OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

42

 

 

 

 

 

 

Item 1A.

Risk Factors

 

42

 

 

 

 

 

 

Item 6.

Exhibits

 

43

 

 

 

 

 

SIGNATURES

 

44

 

2


 

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 and 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 28, 2019 and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. 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.

 

3


 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data, unaudited)

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

482,772

 

 

$

426,222

 

Inventories

 

 

19,346

 

 

 

19,319

 

Accounts receivable

 

 

66,947

 

 

 

95,084

 

Current income tax receivable

 

 

4,844

 

 

 

3,288

 

Prepaid expenses and other

 

 

20,859

 

 

 

15,117

 

Total current assets

 

 

594,768

 

 

 

559,030

 

 

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

 

3,262,990

 

 

 

3,404,150

 

Less: accumulated depreciation and amortization

 

 

1,580,589

 

 

 

1,571,017

 

Theatre properties and equipment – net

 

 

1,682,401

 

 

 

1,833,133

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

1,384,019

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Goodwill

 

 

1,281,354

 

 

 

1,276,324

 

Intangible assets – net

 

 

322,671

 

 

 

330,910

 

Investment in NCM

 

 

272,756

 

 

 

275,592

 

Investments in and advances to affiliates

 

 

166,033

 

 

 

156,766

 

Long-term deferred tax asset

 

 

8,499

 

 

 

9,028

 

Deferred charges and other assets – net

 

 

39,102

 

 

 

41,055

 

Total other assets

 

 

2,090,415

 

 

 

2,089,675

 

Total assets

 

$

5,751,603

 

 

$

4,481,838

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

7,984

 

 

$

7,984

 

Current portion of operating lease obligations

 

 

215,015

 

 

 

 

Current portion of finance and capital lease obligations

 

 

15,501

 

 

 

27,065

 

Current income tax payable

 

 

12,656

 

 

 

12,179

 

Current liability for uncertain tax positions

 

 

 

 

 

573

 

Accounts payable and accrued expenses

 

 

388,623

 

 

 

426,888

 

Total current liabilities

 

 

639,779

 

 

 

474,689

 

Long-term liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,771,663

 

 

 

1,772,627

 

Operating lease obligations, less current portion

 

 

1,230,152

 

 

 

 

Finance and capital lease obligations, less current portion

 

 

126,344

 

 

 

232,467

 

Long-term deferred tax liability

 

 

152,494

 

 

 

155,626

 

Long-term liability for uncertain tax positions

 

 

13,884

 

 

 

13,380

 

Deferred lease expenses

 

 

 

 

 

39,235

 

NCM screen advertising advances

 

 

276,985

 

 

 

287,349

 

Other long-term liabilities

 

 

43,851

 

 

 

50,348

 

Total long-term liabilities

 

 

3,615,373

 

 

 

2,551,032

 

Commitments and contingencies (see Note 18)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Cinemark Holdings, Inc.'s stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value: 300,000,000 shares authorized, 121,853,045 shares issued and 117,150,047 shares outstanding at September 30, 2019 and 121,456,721 shares issued and 116,830,530 shares outstanding at December 31, 2018

 

 

122

 

 

 

121

 

Additional paid-in-capital

 

 

1,165,910

 

 

 

1,155,424

 

Treasury stock, 4,702,998 and 4,626,191 shares, at cost, at September 30, 2019 and December 31, 2018, respectively

 

 

(81,506

)

 

 

(79,259

)

Retained earnings

 

 

748,558

 

 

 

686,459

 

Accumulated other comprehensive loss

 

 

(349,381

)

 

 

(319,007

)

Total Cinemark Holdings, Inc.'s stockholders' equity

 

 

1,483,703

 

 

 

1,443,738

 

Noncontrolling interests

 

 

12,748

 

 

 

12,379

 

Total equity

 

 

1,496,451

 

 

 

1,456,117

 

Total liabilities and equity

 

$

5,751,603

 

 

$

4,481,838

 

 

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

4


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data, unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

454,429

 

 

$

427,616

 

 

$

1,371,041

 

 

$

1,389,110

 

Concession

 

 

289,477

 

 

 

264,165

 

 

 

886,083

 

 

 

831,243

 

Other

 

 

77,911

 

 

 

62,454

 

 

 

237,172

 

 

 

202,906

 

Total revenues

 

 

821,817

 

 

 

754,235

 

 

 

2,494,296

 

 

 

2,423,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

254,911

 

 

 

230,121

 

 

 

759,693

 

 

 

758,242

 

Concession supplies

 

 

51,573

 

 

 

42,720

 

 

 

157,361

 

 

 

134,577

 

Salaries and wages

 

 

103,270

 

 

 

92,495

 

 

 

308,316

 

 

 

285,997

 

Facility lease expense

 

 

87,436

 

 

 

80,592

 

 

 

262,529

 

 

 

243,873

 

Utilities and other

 

 

123,877

 

 

 

112,832

 

 

 

357,210

 

 

 

337,866

 

General and administrative expenses

 

 

44,702

 

 

 

38,299

 

 

 

127,002

 

 

 

123,714

 

Depreciation and amortization

 

 

67,760

 

 

 

64,971

 

 

 

196,795

 

 

 

193,656

 

Impairment of long-lived assets

 

 

27,304

 

 

 

1,641

 

 

 

45,382

 

 

 

5,020

 

Loss on disposal of assets and other

 

 

2,453

 

 

 

7,826

 

 

 

8,057

 

 

 

28,666

 

Total cost of operations

 

 

763,286

 

 

 

671,497

 

 

 

2,222,345

 

 

 

2,111,611

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

58,531

 

 

 

82,738

 

 

 

271,951

 

 

 

311,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(24,967

)

 

 

(27,144

)

 

 

(75,037

)

 

 

(82,725

)

Loss on debt amendments and refinancing

 

 

 

 

 

 

 

 

 

 

 

(1,484

)

Interest income

 

 

3,903

 

 

 

2,761

 

 

 

10,062

 

 

 

7,861

 

Foreign currency exchange loss

 

 

(4,406

)

 

 

(3,126

)

 

 

(4,785

)

 

 

(6,947

)

Distributions from NCM

 

 

2,474

 

 

 

2,386

 

 

 

9,168

 

 

 

12,168

 

Interest expense - NCM

 

 

(4,666

)

 

 

(4,983

)

 

 

(14,180

)

 

 

(14,875

)

Equity in income of affiliates

 

 

15,139

 

 

 

14,158

 

 

 

33,982

 

 

 

29,208

 

Total other expense

 

 

(12,523

)

 

 

(15,948

)

 

 

(40,790

)

 

 

(56,794

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

46,008

 

 

 

66,790

 

 

 

231,161

 

 

 

254,854

 

Income taxes

 

 

14,053

 

 

 

16,169

 

 

 

64,152

 

 

 

59,592

 

Net income

 

$

31,955

 

 

$

50,621

 

 

$

167,009

 

 

$

195,262

 

Less:  Net income attributable to noncontrolling interests

 

 

602

 

 

 

393

 

 

 

1,957

 

 

 

878

 

Net income attributable to Cinemark Holdings, Inc.

 

$

31,353

 

 

$

50,228

 

 

$

165,052

 

 

$

194,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

116,356

 

 

 

116,119

 

 

 

116,288

 

 

 

116,032

 

Diluted

 

 

116,600

 

 

 

116,322

 

 

 

116,577

 

 

 

116,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.27

 

 

$

0.43

 

 

$

1.41

 

 

$

1.66

 

Diluted

 

$

0.27

 

 

$

0.43

 

 

$

1.41

 

 

$

1.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

31,955

 

 

$

50,621

 

 

$

167,009

 

 

$

195,262

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes of $417, $0, $3,391 and $0, net of settlements

 

 

(1,291

)

 

 

 

 

 

(10,504

)

 

 

 

Other comprehensive loss in equity method investments

 

 

(49

)

 

 

(63

)

 

 

(142

)

 

 

(43

)

Foreign currency translation adjustments

 

 

(25,408

)

 

 

(10,797

)

 

 

(19,728

)

 

 

(66,841

)

Total other comprehensive loss, net of tax

 

 

(26,748

)

 

 

(10,860

)

 

 

(30,374

)

 

 

(66,884

)

Total comprehensive income, net of tax

 

 

5,207

 

 

 

39,761

 

 

 

136,635

 

 

 

128,378

 

Comprehensive income attributable to noncontrolling interests

 

 

(602

)

 

 

(393

)

 

 

(1,957

)

 

 

(878

)

Comprehensive income attributable to Cinemark Holdings, Inc.

 

$

4,605

 

 

$

39,368

 

 

$

134,678

 

 

$

127,500

 

 

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

6


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

167,009

 

 

$

195,262

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

193,032

 

 

 

191,236

 

Amortization of intangible and other assets and favorable/unfavorable leases

 

 

3,763

 

 

 

2,420

 

Amortization of long-term prepaid rents

 

 

 

 

 

1,814

 

Amortization of debt issue costs

 

 

3,983

 

 

 

4,236

 

Loss on debt amendments and refinancing

 

 

 

 

 

1,484

 

Amortization of deferred revenues, deferred lease incentives and other

 

 

(12,203

)

 

 

(16,264

)

Impairment of long-lived assets

 

 

45,382

 

 

 

5,020

 

Share based awards compensation expense

 

 

10,486

 

 

 

10,364

 

Loss on disposal of assets and other

 

 

8,057

 

 

 

28,666

 

Non-cash rent expense

 

 

(3,252

)

 

 

 

Deferred lease expenses

 

 

 

 

 

(952

)

Equity in income of affiliates

 

 

(33,982

)

 

 

(29,208

)

Deferred income tax expenses

 

 

(5,314

)

 

 

9,096

 

Distributions from equity investees

 

 

28,163

 

 

 

21,041

 

Changes in assets and liabilities and other

 

 

(7,909

)

 

 

(74,161

)

Net cash provided by operating activities

 

 

397,215

 

 

 

350,054

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Additions to theatre properties and equipment

 

 

(186,512

)

 

 

(245,962

)

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

 

 

(10,170

)

 

 

(11,289

)

Proceeds from sale of theatre properties and equipment and other

 

 

377

 

 

 

3,557

 

Acquisition of NCM common units

 

 

 

 

 

(78,393

)

Investment in joint ventures and other, net

 

 

 

 

 

(20,442

)

Net cash used for investing activities

 

 

(196,305

)

 

 

(352,529

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Dividends paid to stockholders

 

 

(119,452

)

 

 

(112,108

)

Payroll taxes paid as a result of stock withholdings

 

 

(2,247

)

 

 

(2,905

)

Repayments of long-term debt

 

 

(4,947

)

 

 

(4,946

)

Payment of debt issue costs

 

 

 

 

 

(5,103

)

Fees paid related to debt amendments

 

 

 

 

 

(704

)

Payments on finance and capital leases

 

 

(10,830

)

 

 

(18,778

)

Other

 

 

(1,588

)

 

 

 

Net cash used for financing activities

 

 

(139,064

)

 

 

(144,544

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(5,296

)

 

 

(8,732

)

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

56,550

 

 

 

(155,751

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

426,222

 

 

 

522,547

 

End of period

 

$

482,772

 

 

$

366,796

 

 

 

 

 

 

 

 

 

 

Supplemental information (see Note 15)

 

 

 

 

 

 

 

 

 

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. and subsidiaries (the “Company”) operates 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, 2018, 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 that 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, 2018, included in the Annual Report on Form 10-K filed February 28, 2019 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be achieved for the full year.

 

2.

New Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), (“ASC Topic 842”). The purpose of ASC Topic 842 is to provide financial statement users a better understanding of the amount, timing, and uncertainty of cash flows arising from leases. The adoption of ASU 2016-02 resulted in the recognition of a right-of-use asset and a lease liability for most operating leases.  Additionally, new disclosure requirements include qualitative and quantitative information about the amounts recorded in the financial statements. The Company adopted ASC Topic 842 effective January 1, 2019.  See Note 3 for further discussion.  

3.

Adoption of ASC Topic 842 – Lease Accounting

The Company adopted ASC Topic 842 as of January 1, 2019 under the modified retrospective approach that resulted in the recognition of a cumulative-effect adjustment to the opening balance of retained earnings with an option to elect certain practical expedients.  The Company elected the following practical expedients, as allowed by ASC Topic 842:

 

The Company chose not to separate nonlease components from lease components, accounting for lease components and nonlease components associated with a lease as a single lease component.  More specifically, for theatre leases, the Company elected not to separate fixed common area maintenance costs from lease costs when calculating lease liabilities and assets.

 

The Company also elected the following practical expedients:

 

o

The Company did not reassess whether existing contracts in effect as of the transition date of January 1, 2019 were, or contained, a lease.

 

o

The Company did not reassess the classification of existing leases as operating or finance as of the transition date.  

 

o

The Company did not reassess whether any initial direct costs were incurred for any of its existing leases.  

 

o

The Company did not elect to apply the recognition requirements of ASC 842 to short-term leases.


8


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The adoption of ASC Topic 842 included the following primary impacts:

 

1.

The Company recorded a right-of-use asset and lease liability for all of its operating leases as required by the standard.   The lease liability for each lease was determined based on the present value of future minimum lease payments.  The right-of-use asset was based on the lease liability value, adjusted for offsets that existed as of adoption, including deferred rent liabilities of ($39,235), net favorable and unfavorable lease intangibles of ($5,780), deferred lease incentive liabilities of ($12,960) and long-term prepaid rents of $7,707.  The Company recorded operating lease right-of-use assets of $1,491,245 and operating lease liabilities of $1,545,210 upon adoption.

 

2.

Certain of the Company’s existing lease assets and liabilities, which were accounted for under prior sale-leaseback accounting guidance, were derecognized in accordance with ASC Topic 842 and reevaluated for classification per the new accounting guidance.  Several of these leases have been reestablished as operating leases based on ASC Topic 842.

 

a.

For those leases that are now classified as operating leases in accordance with ASC Topic 842, approximately $110,442 and $126,376 of lease assets and liabilities, respectively, were recorded as an adjustment to beginning retained earnings.  The related net deferred income tax asset for these accounts was also recorded as an adjustment to beginning retained earnings.  See additional impact discussed in item 3 below.

 

b.

The Company recognized finance lease assets and liabilities in the amount of $57,440 as of January 1, 2019 for the remaining leases that were determined to be finance leases under ASC Topic 842.    

 

3.

For the leases noted in item 2a above, the Company will now record the related operating lease payments as facility lease expense, compared to prior periods in which the capitalized asset was depreciated and lease payments were recorded as a reduction of a lease liability and interest expense.  

Real Estate Leases - The Company conducts a significant part of its theatre operations in leased properties under noncancelable operating and finance leases with terms generally ranging from 10 to 25 years. In addition to fixed lease payments, some of the leases provide for variable lease payments and some require the payment of taxes, insurance and other costs applicable to the property. Variable lease payments include payments based on a percentage of retail sales over contractual levels or payments adjusted periodically for inflation or changes in attendance. The Company can renew, at its option, a substantial portion of the leases at defined or then market rental rates for various periods.  Some leases also provide for escalating rent payments throughout the lease term.  The Company also leases certain office and warehouse facilities in the U.S. and in international locations.  The lease terms for these facilities generally only include fixed payments.  The Company recognizes fixed lease expense for the operating leases on a straight-line basis over the lease term.  The Company’s real estate lease agreements do not contain any residual value guarantees or restrictive covenants.

 

Equipment Leases - The Company has certain equipment operating leases primarily including projectors, trash compactors and various other equipment used in the day-to-day operation of the business.  Certain of the leases require fixed lease payments to be made over the duration of the lease term, while others are variable in nature based on usage or sales.  Certain of these leases are month-to-month, while others are noncancelable with terms generally ranging from 5 to 12 years.  The Company’s equipment lease agreements do not contain any residual value guarantees or restrictive covenants.

9


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The following table represents the operating and finance right-of-use assets and lease liabilities as of September 30, 2019.

 

 

 

 

As of

 

Leases

Classification

 

September 30, 2019

 

Assets (1)

 

 

 

 

 

Operating lease assets

Operating lease assets

 

$

1,384,019

 

Finance lease assets

Theatre properties and equipment, net of accumulated depreciation and amortization (2)

 

 

103,059

 

Total lease assets

 

 

$

1,487,078

 

 

 

 

 

 

 

Liabilities (1)

 

 

 

 

 

Current

 

 

 

 

 

Operating

Current portion of operating lease obligations

 

$

215,015

 

Finance

Current portion of finance lease obligations

 

 

15,501

 

Noncurrent

 

 

 

 

 

Operating

Operating lease obligations, less current portion

 

 

1,230,152

 

Finance

Finance lease obligations, less current portion

 

 

126,344

 

Total lease liabilities

 

 

$

1,587,012

 

 

(1)

The operating lease right-of-use assets and liabilities recorded on the Company’s condensed consolidated balance sheet generally do not include renewal options that have not yet been exercised.  The Company does not consider a lease renewal as reasonably certain until immediately before the necessary notification is provided to the landlord.

(2)

Finance lease assets are net of accumulated amortization of $57,506 as of September 30, 2019.

As of September 30, 2019, the Company had signed lease agreements with total noncancelable lease payments of approximately $258,453 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 subject to adjustment upon final completion of each construction project.  In accordance with ASC Topic 842, fixed minimum lease payments related to these theatres are not included in the right-of-use assets and lease liabilities as of September 30, 2019.  There were no significant noncancelable lease agreements signed, but not yet commenced, related to equipment leases.  

The following table represents the Company’s aggregate lease costs, by lease classification, for the three and nine months ended September 30, 2019.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

Lease Cost

Classification

September 30, 2019

 

 

September 30, 2019

 

Operating lease costs

 

 

 

 

 

 

 

 

Equipment (1)

Utilities and other

$

1,569

 

 

$

5,173

 

Real Estate (2)(3)

Facility lease expense

 

88,149

 

 

 

262,783

 

Total operating lease costs

 

$

89,718

 

 

$

267,956

 

 

 

 

 

 

 

 

 

 

Finance lease costs

 

 

 

 

 

 

 

 

Amortization of leased assets

Depreciation and amortization

$

3,703

 

 

$

11,182

 

Interest on lease liabilities

Interest expense

 

1,922

 

 

 

5,927

 

Total finance lease costs

 

$

5,625

 

 

$

17,109

 

(1)

Includes approximately $452 and $1,808 of short-term lease payments for the three and nine months ended September 30, 2019, respectively.  

(2)

Includes approximately $18,591 and $54,209 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 and nine months ended September 30, 2019

(3)

Approximately $400 and $1,184 of lease payments are included in general and administrative expenses primarily related to office leases for the three and nine months ended September 30, 2019, respectively.  

10


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The following table represents the maturity of lease liabilities, by lease classification, as of September 30, 2019.

 

 

 

Operating

 

Finance

 

 

 

 

Years Ending

 

Leases

 

Leases

 

Total

 

2019

 

$

70,137

 

$

5,588

 

$

75,725

 

2020

 

 

276,114

 

 

22,373

 

 

298,487

 

2021

 

 

258,827

 

 

18,661

 

 

277,488

 

2022

 

 

229,272

 

 

17,925

 

 

247,197

 

2023

 

 

198,799

 

 

17,236

 

 

216,035

 

After 2023

 

 

704,440

 

 

101,110

 

 

805,550

 

Total lease payments

 

$

1,737,589

 

$

182,893

 

$

1,920,482

 

Less: Interest

 

 

292,422

 

 

41,048

 

 

333,470

 

Present value of lease liabilities

 

$

1,445,167

 

$

141,845

 

$

1,587,012

 

 

The following table represents future minimum lease payments under noncancelable operating and capital leases at December 31, 2018 as presented in the Company’s Annual Report on Form 10-K filed February 28, 2019:

 

 

 

Operating

 

 

Capital

 

Years Ending

 

Leases

 

 

Leases

 

2019

 

$

253,323

 

 

$

42,434

 

2020

 

 

242,336

 

 

 

41,502

 

2021

 

 

230,396

 

 

 

34,589

 

2022

 

 

204,628

 

 

 

32,462

 

2023

 

 

176,802

 

 

 

28,534

 

Thereafter

 

 

677,091

 

 

 

166,375

 

Total

 

$

1,784,576

 

 

 

345,896

 

Amounts representing interest payments

 

 

 

 

 

 

(86,364

)

Present value of future minimum payments

 

 

 

 

 

 

259,532

 

Current portion of finance and capital lease obligations

 

 

 

 

 

 

(27,065

)

Capital lease obligations, less current portion

 

 

 

 

 

$

232,467

 

 

The following table represents the weighted-average remaining lease term and discount rate, disaggregated by lease classification, as of September 30, 2019.

 

 

As of

 

Lease Term and Discount Rate

 

September 30, 2019

 

Weighted-average remaining lease term (years) (1)

 

 

 

 

Operating leases - equipment

 

 

4.1

 

Operating leases - real estate

 

 

7.9

 

Finance leases - equipment

 

 

5.9

 

Finance leases - real estate

 

 

10.6

 

 

 

 

 

 

Weighted-average discount rate (2)

 

 

 

 

Operating leases - equipment

 

 

4.3

%

Operating leases - real estate

 

 

4.8

%

Finance leases - equipment

 

 

5.5

%

Finance leases - real estate

 

 

5.2

%

 

(1)

The lease assets and liabilities recorded on the Company’s condensed consolidated balance sheet generally do not include renewal options that have not yet been executed.  The Company does not consider a lease renewal exercise as reasonably certain until immediately before the necessary notification is provided to the landlord.

 

 

(2)

The discount rate for each lease represents the incremental borrowing rate at which the Company would borrow, on a collateralized basis, over a similar term and at an amount equal to the lease payments in a similar economic environment.

 

11


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The following table represents the minimum cash lease payments included in the measurement of lease liabilities and the non-cash addition of right-of-use assets for the nine months ended September 30, 2019.

 

 

 

Nine Months Ended

 

Other Information

 

September 30, 2019

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

Cash outflows for operating leases

 

$

211,940

 

Cash outflows for finance leases - operating activities

 

$

5,756

 

Cash outflows for finance leases - financing activities

 

$

10,830

 

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

 

 

 

 

Operating lease liabilities - real estate

 

$

53,526

 

Operating lease liabilities - equipment

 

$

668

 

Finance lease liabilities

 

$

 

 

Lessor Arrangements

 

As noted above, the Company did not reassess whether existing contracts in effect as of the transition date of January 1, 2019 were, or contained, a lease.  However, effective September 17, 2019, the Company amended its Exhibitor Services Agreement (“ESA”) with National CineMedia, LLC (“NCM”) and, as a result of this amendment, the Company reassessed the ESA under ASC Topic 842.  The Company’s assessment resulted in the determination that the nonconsecutive periods of use of the theatre screens by NCM under the ESA qualify as a lease in accordance with ASC Topic 842.  See further discussion in Note 8.

 

The Company rents its theatre auditoriums for corporate meetings, screenings, education and training sessions and other private events.  These rentals, which are not significant to the Company, are generally one-time events and the related revenue is reflected as other revenue on condensed consolidated statement of income.  

 

4. 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 sales are made at the registers.  Other revenues primarily consist of screen advertising, promotional income, studio trailer placements and transactional fees. The Company sells gift cards and discount ticket vouchers, the proceeds from which are recorded as current liabilities.  Revenues for gift cards and discount ticket vouchers are recognized when they are redeemed for movie tickets or concession items.  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 current liabilities and records admissions revenues when the showtime for a movie ticket purchased with a credit has passed.  The Company also has loyalty programs in many of its 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 liabilities based on the number of reward points issued to customers and recognizes the deferred revenues when the customer redeems such points.  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 has met its performance obligations in accordance with the terms of the contracts.  

Screen advertising revenues for the U.S. operating segment primarily relate to the ESA with NCM and the Company’s beverage concessionaire agreement. As discussed in Note 3 and Note 8, prior to September 17, 2019, such screen advertising was accounted for under ASC Topic 606, Revenue from Contracts with Customers, and effective upon the amendment of the ESA, NCM screen advertising was accounted for under ASC Topic 842. See table at Note 8 for screen advertising revenues recorded in other revenue under ASC Topic 606 prior to the amendment of the ESA and under ASC Topic 842 subsequent to the amendment of the ESA.  

Accounts receivable as of September 30, 2019 included approximately $29,719 of receivables related to contracts with customers.  The Company did not record any assets related to the costs to obtain or fulfill a contract with customers during the nine months ended September 30, 2019.

 

12


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Disaggregation of Revenue

The following table presents revenues for the three and nine months ended September 30, 2019 and 2018, disaggregated based on major type of good or service and by reportable operating segment.

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30, 2019

 

 

September 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

$

351,122

 

$

103,307

 

$

454,429

 

 

$

1,066,884

 

$

304,157

 

$

1,371,041

 

Concession revenues

 

230,415

 

 

59,062

 

 

289,477

 

 

 

704,727

 

 

181,356

 

 

886,083

 

Screen advertising, screen rental and promotional revenues

 

21,114

 

 

16,448

 

 

37,562

 

 

 

63,996

 

 

49,587

 

 

113,583

 

Other revenues

 

30,394

 

 

9,955

 

 

40,349

 

 

 

95,180

 

 

28,409

 

 

123,589

 

Total revenues

$

633,045

 

$

188,772

 

$

821,817

 

 

$

1,930,787

 

$

563,509

 

$

2,494,296

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30, 2018

 

 

September 30, 2018

 

 

U.S.

 

International

 

 

 

 

 

U.S.

 

International

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

Operating

 

Operating

 

 

 

 

Major Goods/Services

Segment (1)

 

Segment

 

Consolidated

 

 

Segment (1)

 

Segment

 

Consolidated

 

Admissions revenues

$

333,274

 

$

94,342

 

$

427,616

 

 

$

1,091,489

 

$

297,621

 

$

1,389,110

 

Concession revenues

 

207,960

 

 

56,205

 

 

264,165

 

 

 

661,328

 

 

169,915

 

 

831,243

 

Screen advertising and promotional revenues

 

19,010

 

 

13,420

 

 

32,430

 

 

 

58,240

 

 

43,135

 

 

101,375

 

Other revenues

 

22,031

 

 

7,993

 

 

30,024

 

 

 

76,635

 

 

24,896

 

 

101,531

 

Total revenues

$

582,275

 

$

171,960

 

$

754,235

 

 

$

1,887,692

 

$

535,567

 

$

2,423,259

 

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 16 for additional information on intercompany eliminations.

The following table presents revenues for the three and nine months ended September 30, 2019 and 2018, disaggregated based on timing of revenue recognition.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2019

 

 

 

U.S.

 

International

 

 

 

 

 

U.S.

 

International

 

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

 

Segment (1)

 

Segment

 

Consolidated

 

 

Segment (1)

 

Segment

 

Consolidated

 

Goods and services transferred at a point in time

 

$

610,063

 

$

169,171

 

$

779,234

 

 

$

1,860,828

 

$

504,702

 

$

2,365,530

 

Goods and services transferred over time

 

 

22,982

 

 

19,601

 

 

42,583

 

 

 

69,959

 

 

58,807

 

 

128,766

 

Total

 

$

633,045

 

$

188,772

 

$

821,817

 

 

$

1,930,787

 

$

563,509

 

$

2,494,296

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2018

 

 

 

U.S.

 

International

 

 

 

 

 

U.S.

 

International

 

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

 

Segment (1)

 

Segment

 

Consolidated

 

 

Segment (1)

 

Segment

 

Consolidated

 

Goods and services transferred at a point in time

 

$

561,849

 

$

155,291

 

$

717,140

 

 

$

1,824,138

 

$

482,790

 

$

2,306,928

 

Goods and services transferred over time

 

 

20,426

 

 

16,669

 

 

37,095

 

 

 

63,554

 

 

52,777

 

 

116,331

 

Total

 

$

582,275

 

$

171,960

 

$

754,235

 

 

$

1,887,692

 

$

535,567

 

$

2,423,259

 

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 16 for additional information on intercompany eliminations.

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 nine months ended September 30, 2019.  

 

 

NCM screen advertising advances (1)

 

 

Other

Deferred

Revenues (2)

 

 

Total

 

Balance at January 1, 2019

 

$

287,349

 

 

$

106,075

 

 

$

393,424

 

Amounts recognized as accounts receivable

 

 

 

 

 

10,186

 

 

 

10,186

 

Cash received from customers in advance

 

 

 

 

 

138,927

 

 

 

138,927

 

Common units received from NCM (see Note 8)

 

 

1,552

 

 

 

 

 

 

1,552

 

Revenue recognized during period

 

 

(11,916

)

 

 

(141,684

)

 

 

(153,600

)

Foreign currency translation adjustments

 

 

 

 

 

(1,321

)

 

 

(1,321

)

Balance at September 30, 2019

 

$

276,985

 

 

$

112,183

 

 

$

389,168

 

 

(1)

See Note 8 for the maturity of balance as of September 30, 2019.

 

(2)

Includes liabilities associated with outstanding gift cards and SuperSavers, 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 September 30, 2019 and when the Company expects to recognize this revenue.

 

 

Twelve Months Ended September 30,

 

 

 

 

 

 

 

 

 

Remaining Performance Obligations

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

Thereafter

 

 

Total

 

Deferred revenue

 

 

102,449

 

 

 

9,488

 

 

 

200

 

 

 

46

 

 

 

 

 

 

 

 

 

112,183

 

 

5.

Earnings Per Share

The Company considers its unvested restricted stock 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.

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Cinemark Holdings, Inc.

 

$

31,353

 

 

$

50,228

 

 

$

165,052

 

 

$

194,384

 

Earnings allocated to participating share-based awards (1)

 

 

(211

)

 

 

(304

)

 

 

(1,012

)

 

 

(1,123

)

Net income attributable to common stockholders

 

$

31,142

 

 

$

49,924

 

 

$

164,040

 

 

$

193,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator (shares in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common stock outstanding

 

 

116,356

 

 

 

116,119

 

 

 

116,288

 

 

 

116,032

 

Common equivalent shares for restricted stock units

 

 

244

 

 

 

203

 

 

 

289

 

 

 

256

 

Diluted common equivalent shares

 

 

116,600

 

 

 

116,322

 

 

 

116,577

 

 

 

116,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common stockholders

 

$

0.27

 

 

$

0.43

 

 

$

1.41

 

 

$

1.66

 

Diluted earnings per share attributable to common stockholders

 

$

0.27

 

 

$

0.43

 

 

$

1.41

 

 

$

1.66

 

 

(1)

For the three months ended September 30, 2019 and 2018, a weighted average of approximately 793 and 708 shares of restricted stock, respectively, were considered participating securities.  For the nine months ended September 30, 2019 and 2018, a weighted average of approximately 719 and 677 shares of restricted stock, respectively, were considered participating securities.  

14


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

6.

Long Term Debt Activity

Senior Secured Credit Facility

On March 29, 2018, Cinemark USA, Inc., our wholly-owned subsidiary, amended its senior secured credit facility to extend the maturity of the term loan to March 29, 2025, reduce the rate at which the term loan bears interest by 0.25% and to reduce the amount of real property required to be mortgaged to secure the loans. Under the amended facility, 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 Company incurred debt issue costs of approximately $4,962 in connection with the amendment.  As a result of the amendment, the Company wrote-off $780 of unamortized debt issue costs and incurred approximately $704 in legal and other fees, both of which are reflected as loss on debt amendments and refinancing on the condensed consolidated statements of income for the nine months ended September 30, 2018.  

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”). The carrying value of the Company’s long-term debt was $1,804,364 and $1,809,311 as of September 30, 2019 and December 31, 2018, respectively, excluding unamortized debt discounts and debt issue costs. The fair value of the Company’s long-term debt was $1,825,063 and $1,774,066 as of September 30, 2019 and December 31, 2018, respectively.

Interest Rate Swap Agreements

The Company is currently a party to three interest rate swap agreements that 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 that qualify for cash flow hedge accounting. The fair values of the interest rate swaps 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 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 uses projected future interest rates as provided by counterparty to the interest rate swap agreement and the fixed rates that the Company is obligated to pay under the agreement. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 3 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35. See Note 13 for a summary of unrealized gains or losses recorded in accumulated other comprehensive loss.

Below is a summary of the Company’s interest rate swap agreements designated as cash flow hedges as of September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value at

 

Notional

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

Amount

 

 

Effective Date

 

Pay Rate

 

 

Receive Rate

 

Expiration Date

 

2019 (1)

 

$

137,500

 

 

December 31, 2018

 

2.75%

 

 

1-Month LIBOR

 

December 31, 2022

 

$

5,778

 

$

175,000

 

 

December 31, 2018

 

2.75%

 

 

1-Month LIBOR

 

December 31, 2022

 

 

7,346

 

$

137,500

 

 

December 31, 2018

 

2.77%

 

 

1-Month LIBOR

 

December 31, 2022

 

 

5,864

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

18,988

 

(1)  

Approximately $3,746 of the total is included in accounts payable and accrued expenses and $15,242 is included in other long-term liabilities on the condensed consolidated balance sheet as of September 30, 2019.

15


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

7.

Equity

Below is a summary of changes in stockholders’ equity attributable to Cinemark Holdings, Inc., noncontrolling interests and total equity for the three and nine months ended September 30, 2019 and 2018:

 

 

 

Common  Stock

 

Treasury Stock

 

Additional Paid-In-Capital

 

Retained Earnings

 

Accumulated Other Comprehensive Income (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 (see Note 3)

 

 

 

 

 

 

 

 

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

 

Other comprehensive loss in equity method investees

 

 

 

 

 

 

 

 

 

 

(71

)

 

(71

)

 

 

 

(71

)

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

 

 

 

 

 

 

 

 

 

 

(3,311

)

 

(3,311

)

 

 

 

(3,311

)

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

 

Issuance of share based awards and share based awards compensation expense

 

 

 

 

 

 

3,840

 

 

 

 

 

 

 

3,840

 

 

 

 

 

3,840

 

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

 

 

 

 

 

 

 

 

(39,832

)

 

 

 

(39,832

)

 

 

 

(39,832

)

Dividends paid to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(294

)

 

(294

)

Dividends accrued on unvested restricted stock unit awards (1)

 

 

 

 

 

 

 

 

(189

)

 

 

 

(189

)

 

 

 

(189

)

Net income

 

 

 

 

 

 

 

 

31,353

 

 

 

 

31,353

 

 

602

 

 

31,955

 

Other comprehensive loss in equity method investees

 

 

 

 

 

 

 

 

 

 

(49

)

 

(49

)

 

 

 

(49

)

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

 

 

 

 

 

 

 

 

 

 

(1,291

)

 

(1,291

)

 

 

 

(1,291

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

(25,408

)

 

(25,408

)

 

 

 

(25,408

)

Balance at September 30, 2019

 

$

122

 

$

(81,506

)

$

1,165,910

 

$

748,558

 

$

(349,381

)

$

1,483,703

 

$

12,748

 

$

1,496,451

 

 

16


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

 

 

Common  Stock

 

Treasury Stock

 

Additional Paid-In-Capital

 

Retained Earnings

 

Accumulated Other Comprehensive Income (Loss)

 

Total Cinemark Holdings, Inc. Stockholders’ Equity

 

Noncontrolling Interests

 

Total Equity

 

Balance at January 1, 2018

 

$

121

 

$

(76,354

)

$

1,141,088

 

$

582,222

 

$

(253,282

)

$

1,393,795

 

$

11,893

 

$

1,405,688

 

Cumulative effect of change in accounting principle, net of taxes of $13,079

 

 

 

 

 

 

 

 

40,526

 

 

 

 

40,526

 

 

 

 

40,526

 

Issuance of share based awards and share based awards compensation expense

 

 

 

 

 

 

3,426

 

 

 

 

 

 

 

3,426

 

 

 

 

3,426

 

Stock withholdings related to share based awards that vested during the three months ended March 31, 2018

 

 

 

 

(2,695

)

 

 

 

 

 

 

 

(2,695

)

 

 

 

(2,695

)

Dividends paid to stockholders, $0.32 per common share (1)

 

 

 

 

 

 

 

 

(37,346

)

 

 

 

(37,346

)

 

 

 

(37,346

)

Dividends accrued on unvested restricted stock unit awards (1)

 

 

 

 

 

 

 

 

(125

)

 

 

 

(125

)

 

 

 

(125

)

Net income

 

 

 

 

 

 

 

 

62,021

 

 

 

 

62,021

 

 

156

 

 

62,177

 

Other comprehensive income in equity method investees

 

 

 

 

 

 

 

 

 

 

136

 

 

136

 

 

 

 

136

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

204

 

 

204

 

 

 

 

204

 

Balance at March 31, 2018

 

 

121

 

 

(79,049

)

 

1,144,514

 

 

647,298

 

 

(252,942

)

 

1,459,942

 

 

12,049

 

 

1,471,991

 

Issuance of share based awards and share based awards compensation expense

 

 

 

 

 

 

3,452

 

 

 

 

 

 

3,452

 

 

 

 

3,452

 

Stock withholdings related to share based awards that vested during the three months ended June 30, 2018

 

 

 

 

(210

)

 

 

 

 

 

 

 

(210

)

 

 

 

(210

)

Dividends paid to stockholders, $0.32 per common share (1)

 

 

 

 

 

 

 

 

(37,377

)

 

 

 

(37,377

)

 

 

 

(37,377

)

Dividends accrued on unvested restricted stock unit awards (1)

 

 

 

 

 

 

 

 

(146

)

 

 

 

(146

)

 

 

 

(146

)

Net income

 

 

 

 

 

 

 

 

82,135

 

 

 

 

82,135

 

 

329

 

 

82,464

 

Other comprehensive loss in equity method investees

 

 

 

 

 

 

 

 

 

 

(116

)

 

(116

)

 

 

 

(116

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

(56,248

)

 

(56,248

)

 

 

 

(56,248

)

Balance at June 30, 2018

 

 

121

 

 

(79,259

)

 

1,147,966

 

 

691,910

 

 

(309,306

)

 

1,451,432

 

 

12,378

 

 

1,463,810

 

Issuance of share based awards and share based awards compensation expense

 

 

 

 

 

 

3,486

 

 

 

 

 

 

3,486

 

 

 

 

3,486

 

Dividends paid to stockholders, $0.32 per common share (1)

 

 

 

 

 

 

 

 

(37,385

)

 

 

 

(37,385

)

 

 

 

(37,385

)

Dividends accrued on unvested restricted stock unit awards (1)

 

 

 

 

 

 

 

 

(145

)

 

 

 

(145

)

 

 

 

(145

)

Net income

 

 

 

 

 

 

 

 

50,228

 

 

 

 

50,228

 

 

393

 

 

50,621

 

Other comprehensive loss in equity method investees

 

 

 

 

 

 

 

 

 

 

(63

)

 

(63

)

 

 

 

(63

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

(10,797

)

 

(10,797

)

 

 

 

(10,797

)

Balance at September 30, 2018

 

$

121

 

$

(79,259

)

$

1,151,452

 

$

704,608

 

$

(320,166

)

$

1,456,756

 

$

12,771

 

$

1,469,527

 

 

(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, 2019 and 2018:  

 

 

 

 

 

Amount per Share

 

 

 

 

 

Declaration Date

Record Date

Payable Date

 

of Common Stock

 

 

Total

 

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

 

8/15/2019

9/4/2019

9/18/2019

 

 

0.34

 

 

 

40,021

 

Nine Months Ended September 30, 2019

 

$

1.02

 

 

$

119,938

 

 

 

 

 

 

 

 

 

 

 

 

2/23/2018

3/8/2018

3/22/2018

 

$

0.32

 

 

$

37,471

 

5/25/2018

6/8/2018

6/22/2018

 

 

0.32

 

 

 

37,523

 

8/23/2018

9/4/2018

9/18/2018

 

 

0.32

 

 

 

37,530

 

Nine Months Ended September 30, 2018

 

$

0.96

 

 

$

112,524

 

 

17


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

8.

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 (2)

 

Cash Received

 

Balance as of January 1, 2019

 

$

275,592

 

$

(287,349

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

1,552

 

 

(1,552

)

 

 

 

 

 

 

 

 

 

 

Revenues earned under ESA (1)(2)

 

 

 

 

 

 

 

 

 

 

(22,151

)

 

13,392

 

 

8,759

 

Revenues earned under amendment to ESA(2)(3)

 

 

 

 

 

 

 

 

 

 

(1,482

)

 

788

 

 

694

 

Receipt of excess cash distributions

 

 

(16,126

)

 

 

 

(8,009

)

 

 

 

 

 

 

 

24,135

 

Receipt of cash under tax receivable agreement

 

 

(2,324

)

 

 

 

(1,159

)

 

 

 

 

 

 

 

3,483

 

Equity in earnings

 

 

14,062

 

 

 

 

 

 

(14,062

)

 

 

 

 

 

 

Amortization of deferred revenue

 

 

 

 

11,916

 

 

 

 

 

 

(11,916

)

 

 

 

 

Balance as of and for the nine months ended September 30, 2019

 

$

272,756

 

$

(276,985

)

$

(9,168

)

$

(14,062

)

$

(35,549

)

$

14,180

 

$

37,071

 

 

(1)

Amount includes the per patron and per digital screen theatre access fees due to the Company prior to the first amendment to the Amended and Restated ESA, net of amounts paid to NCM for on-screen advertising time provided to the Company’s beverage concessionaire of approximately $8,808.

(2)  

Reflects impact of significant financing component related to amounts received in advance under the ESA and CUA agreements.  See also Notes 3 and 4.  

(3)

Reflects screen rental revenues earned after the amendment to the ESA.

 

Investment in National CineMedia

NCM operates a digital in-theatre network in the U.S. for providing cinema advertising. The Company entered into an Exhibitor Services Agreement with NCM (“ESA”), pursuant to which NCM primarily provides advertising to our theatres. As described in Note 6 to the Company’s financial statements as included in its 2018 Annual Report on Form 10-K, on February 13, 2007, National Cinemedia, 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 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 2037.  Following the 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.

During the three months ended September 30, 2019 and 2018, the Company recorded equity in earnings of $9,050 and $6,830, respectively.  During the nine months ended September 30, 2019 and 2018, the Company recorded equity in earnings of $14,062 and $11,341, respectively.  

18


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Common Unit Adjustments

In addition to the consideration received upon the NCMI IPO and ESA modification in 2007, the Company also periodically receives consideration in the form of common units from NCM.  Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCMI and the Company, 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. As discussed in Note 6 to the Company’s financial statements as included in its 2018 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 or NCM screen advertising advances. The Company’s Tranche 2 Investment is accounted for following the equity method, with undistributed equity earnings related to its Tranche 2 Investment included as a component of earnings in equity in income of affiliates and distributions received related to its Tranche 2 Investment are recorded as a reduction of investment basis

 

During March 2019, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, on March 29, 2019, the Company received an additional 219,056 common units of NCM, each of which is convertible into one share of NCMI common stock. The Company recorded the additional common units received at estimated fair value with a corresponding adjustment to deferred revenue of approximately $1,552. The fair value of the common units received was estimated based on the market price of 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 is recognized on a straight-line basis over the remaining term of the first amendment to the Amended and Restated ESA.

As of September 30, 2019, the Company owned a total of 39,737,700 common units of NCM, representing an ownership interest of approximately 25%. The estimated fair value of the Company’s investment in NCM was approximately $325,849 based on the price of NCMI common stock as of September 30, 2019 of $8.20 per share (Level 1 input as defined in FASB ASC Topic 820).

 

Exhibitor Service Agreement

As previously discussed, our domestic theatres are part of the in-theatre digital network operated by NCM under the ESA. NCM provides advertising to our theatres through its branded “Noovie” pre-show entertainment program and also handles lobby promotions and displays for our theatres.  We receive a monthly theatre access fee for participation in the NCM network and also earn screen advertising revenue on a per patron basis.   Prior to September 17, 2019, the ESA was accounted for under ASC Topic 606, Revenue from Contracts with Customers.   See Note 3 and Note 4.    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.  Since the agreement was amended, the Company was required to evaluate the revised contract under ASC Topic 842, Leases, and as a result, determined that the ESA met the definition of a lease.  The Company leases nonconsecutive periods of use of its domestic theatre screens to NCM for purposes of showing third party advertising content.  The lease, which is classified as an operating lease, generally requires variable lease payments based on the number of patrons attending the showtimes during which such advertising is shown.  The lease agreement is considered short-term due to the fact that the nonconsecutive periods of use, or advertising time slots, are set on a weekly basis.  The revenues earned under the ESA screen advertising revenues, both before and after the amendment, are reflected in other revenue on the condensed consolidated income statement.  

The recognition of revenue related to the deferred revenue or NCM screen advertising advances will continue to be recorded on a straight-line basis over the new term of the amended ESA or February 2041.

 

 

 

Twelve Months Ended September 30,

 

 

 

 

 

 

 

 

 

Remaining Maturity

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

Thereafter

 

 

Total

 

NCM screen advertising advances

 

 

15,912

 

 

 

15,917

 

 

 

15,917

 

 

 

15,917

 

 

 

15,917

 

 

 

197,405

 

 

 

276,985

 

 

19


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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 significant length of time between receiving the NCM screen advertising advances (the $174 million received at the NCMI IPO and the periodic common unit adjustments) and completion of the performance 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 retain the accounting for the significant financing component as the economic substance of the arrangement represents a financing, consistent with the guidance in ASC Topic 606.  As a result of the significant financing component, the Company recognized incremental screen advertising revenue and an offsetting interest expense of $4,666 and $4,983 during the three months ended September 30, 2019 and 2018, respectively, and $14,180 and $14,875 for the nine months ended September 30, 2019 and 2018, respectively. 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 8.0%.

NCM Financial Information

Below is summary financial information for NCM for the periods indicated (financial information as of and for the three months ended September 27, 2019 is not yet available).

 

 

Three Months Ended

 

 

Six Months ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 27, 2019

 

 

June 27, 2019

 

 

September 27, 2018

 

 

September 27, 2018

 

Gross revenues

 

$

110,200

 

 

$

187,100

 

 

$

110,100

 

 

$

304,000

 

Operating income

 

$

37,700

 

 

$

48,600

 

 

$

42,300

 

 

$

93,500

 

Net income

 

$

23,500

 

 

$

20,600

 

 

$

28,500

 

 

$

50,500

 

 

 

 

As of

 

 

As of

 

 

 

June 27, 2019

 

 

December 27, 2018

 

Current assets

 

$

141,100

 

 

$

172,700

 

Noncurrent assets

 

$

732,900

 

 

$

726,800

 

Current liabilities

 

$

88,400

 

 

$

115,200

 

Noncurrent liabilities

 

$

939,300

 

 

$

924,900

 

Members deficit

 

$

(153,700

)

 

$

(140,600

)

 

9.

Other Investments

Below is a summary of activity for each of the Company’s other investments for the nine months ended September 30, 2019:

 

 

 

DCIP

 

AC JV,

LLC

 

DCDC

 

FE Concepts

 

Other

 

Total

 

Balance at January 1, 2019

 

$

125,252

 

$

5,266

 

$

2,255

 

$

19,918

 

$

4,075

 

$

156,766

 

Cash distributions received

 

 

(7,912

)

 

(1,800

)

 

 

 

 

 

 

 

(9,712

)

Equity in income

 

 

17,024

 

 

2,185

 

 

777

 

 

(66

)

 

 

 

19,920

 

Equity in other comprehensive loss

 

 

(142

)

 

 

 

 

 

 

 

 

 

(142

)

Other

 

 

 

 

 

 

 

 

 

 

(799

)

 

(799

)

Balance at September 30, 2019

 

$

134,222

 

$

5,651

 

$

3,032

 

$

19,852

 

$

3,276

 

$

166,033

 

 

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 six 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

20


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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 late 2020.  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 three months ended September 30, 2019.  

As of September 30, 2019, 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.

Below is summary financial information for DCIP for the periods indicated:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

September 30, 2019

 

 

September 30, 2018

 

Gross revenues

 

$

40,200

 

 

$

43,403

 

 

$

125,869

 

 

$

126,957

 

Operating income

 

$

22,617

 

 

$

25,816

 

 

$

73,396

 

 

$

74,310

 

Net income

 

$

22,362

 

 

$

24,311

 

 

$

69,323

 

 

$

68,014

 

 

 

 

As of

 

 

 

September 30, 2019

 

 

December 31, 2018

 

Current assets

 

$

64,019

 

 

$

57,907

 

Noncurrent assets

 

$

603,209

 

 

$

684,545

 

Current liabilities

 

$

66,942

 

 

$

67,408

 

Noncurrent liabilities

 

$

11,985

 

 

$

125,596

 

Members' equity

 

$

588,301

 

 

$

549,448

 

 

As of September 30, 2019, the Company had 3,866 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.  See Note 3 for discussion of the weighted-average remaining lease term and discount rate of equipment operating leases, which includes digital projection systems leased from Kasima, LLC. The Company had the following transactions with DCIP, reflected in utilities and other costs on the condensed consolidated statements of income, during the three and nine months ended September 30, 2019 and 2018:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

September 30, 2019

 

 

September 30, 2018

 

Equipment lease payments

 

$

1,105

 

 

$

1,229

 

 

$

3,357

 

 

$

3,689

 

Warranty reimbursements from DCIP

 

$

(2,953

)

 

$

(2,791

)

 

$

(8,842

)

 

$

(7,909

)

Management service fees

 

$

128

 

 

$

180

 

 

$

438

 

 

$

558

 

 

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” 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, including concerts, 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 $10,332 and $8,516 for the nine months ended September 30, 2019 and 2018, respectively, which are included in film rentals and advertising costs on the condensed consolidated statements of income.  Additionally, the remaining outstanding balance of a note payable from the Company to NCM, related to the formation of AC, was $1,389 as of September 30, 2019.

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 $703 and $657 to DCDC during the nine months ended September 30, 2019 and 2018, 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.

21


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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 will develop and operate a family entertainment center that offers bowling, gaming, movies and other amenities.  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.

10.

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 nine months ended September 30, 2019:

 

 

 

Number of

 

 

 

 

 

 

 

Treasury

 

 

 

 

 

 

 

Shares

 

 

Cost

 

Balance at January 1, 2019

 

 

4,626,191

 

 

$

79,259

 

Restricted stock withholdings (1)

 

 

57,456

 

 

 

2,247

 

Restricted stock forfeitures

 

 

19,351

 

 

 

Balance at September 30, 2019

 

 

4,702,998

 

 

$

81,506

 

 

(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 $36.81 to $40.32 per share.

As of September 30, 2019, the Company had no plans to retire any shares of treasury stock.

Restricted Stock – During the nine months ended September 30, 2019, the Company granted 308,250 shares of restricted stock to its 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 $36.70 to $41.61 per share. The Company assumed forfeiture rates for the restricted stock awards that ranged from 0% to 10%.  The restricted stock awards vest over periods ranging from one to four 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.

Below is a summary of restricted stock activity for the nine months ended September 30, 2019:

 

 

 

Shares of

 

 

Weighted

Average

 

 

 

Restricted

 

 

Grant Date

 

 

 

Stock

 

 

Fair Value

 

Outstanding at January 1, 2019

 

 

704,353

 

 

$

38.68

 

Granted

 

 

308,250

 

 

$

37.42

 

Vested

 

 

(198,711

)

 

$

41.38

 

Forfeited

 

 

(19,351

)

 

$

37.41

 

Outstanding at September 30, 2019

 

 

794,541

 

 

$

37.55

 

Unvested restricted stock at September 30, 2019

 

 

794,541

 

 

$

37.55

 

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

Compensation expense recognized during the period

 

$

7,456

 

 

$

7,266

 

Fair value of restricted shares that vested during the period

 

$

7,630

 

 

$

7,815

 

Income tax benefit recognized upon vesting of restricted stock awards

 

$

1,473

 

 

$

1,751

 

 

22


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

As of September 30, 2019, the estimated remaining unrecognized compensation expense related to unvested restricted stock awards was $17,998 and the weighted average period over which this remaining compensation expense will be recognized is approximately two years.

Restricted Stock Units – During the nine months ended September 30, 2019, the Company granted restricted stock units representing 306,651 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, 2020 based on a formula utilizing a multiple of Adjusted EBITDA subject to certain 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 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 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 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 2019 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 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 nine months ended September 30, 2019 at each of the three target levels of financial performance (excluding forfeiture assumptions):

 

 

 

Number of

 

 

 

 

 

 

 

Shares

 

 

Value at

 

 

 

Vesting

 

 

Grant

 

at IRR of at least 6%

 

 

136,285

 

 

$

5,011

 

at IRR of at least 8%

 

 

204,427

 

 

$

7,517

 

at IRR of at least 14%

 

 

306,651

 

 

$

11,276

 

 

Due to the fact that the IRR for the two-year performance period could not be determined at the time of the 2019 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 awards was determined based on the closing price of the Company’s common stock on the date of grant, which was $36.77 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 are 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,

 

 

 

2019

 

 

2018

 

Number of restricted stock unit awards that vested during the period

 

 

88,074

 

 

 

127,084

 

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

 

$

3,550

 

 

$

4,846

 

Accumulated dividends paid upon vesting of restricted stock unit awards

 

$

375

 

 

$

526

 

Compensation expense recognized during the period

 

$

3,030

 

 

$

3,098

 

Income tax benefit recognized upon vesting of restricted stock unit awards

 

$

175

 

 

$

740

 

 

During the nine months ended September 30, 2019, the Company modified the performance target levels for the restricted stock unit awards granted during February 2017 and February 2018 for all participants other than certain executive officers.  The modification adjusted the threshold, target and maximum IRR levels from 7.0%, 9.5% and 13.0%, respectively, to 6.0%, 8.0% and

23


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

14.0%, respectively.  The Company accounted for the change in performance measures as modifications of each award, and recorded a reduction to compensation expense of $132 during the three months ended March 31, 2019.  Simultaneous with the modification of the restricted stock unit awards granted during February 2017, the Company determined that the final IRR reached for the respective measurement period was 9.3%, which resulted in a reduction in compensation expense of approximately $563.  

 

As of September 30, 2019, the estimated remaining unrecognized compensation expense related to the outstanding restricted stock unit awards was $11,128. The weighted average period over which this remaining compensation expense will be recognized is approximately two years. As of September 30, 2019, the Company had restricted stock units outstanding that represented a total of 554,529 hypothetical shares of common stock, net of forfeitures, assuming an IRR of 7.2% was achieved for the 2016 grants, an IRR of 9.3% was achieved for the 2017 grants, and the maximum IRR level is achieved for all other grants outstanding.

11.

Goodwill and Other Intangible Assets

The Company’s goodwill was as follows:

 

 

 

U.S.

Operating

Segment

 

 

International

Operating

Segment

 

 

Total

 

Balance at January 1, 2019 (1)

 

$

1,174,041

 

 

$

102,283

 

 

$

1,276,324

 

Theatres acquired in the US and Brazil (2)

 

 

8,812

 

 

 

869

 

 

 

9,681

 

Foreign currency translation adjustments

 

 

 

 

 

(4,651

)

 

 

(4,651

)

Balance at September 30, 2019 (1)

 

$

1,182,853

 

 

$

98,501

 

 

$

1,281,354

 

 

 

(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)

Amount represents final purchase price allocation for two theatres acquired in the U.S. during 2019 and the final purchase price allocation adjustment for theatres acquired in Brazil during 2018.

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 nineteen regions in the U.S. and seven 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).  For the year ended December 31, 2018, the Company performed a quantitative goodwill impairment assessment on all reporting units, in accordance with ASC Topic 350-20-35.  No events or changes in circumstances occurred during the nine months ended September 30, 2019 that indicated the carrying value of goodwill might exceed its estimated fair value.

Intangible assets consisted of the following:

 

 

 

Balance at January 1, 2019

 

Impact of Adoption of ASC Topic 842 (1)

 

Amortization

 

Other (2)

 

Balance at September 30, 2019

 

Intangible assets with finite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount

 

$

105,256

 

$

(18,024

)

$

 

$

(2,501

)

$

84,731

 

Accumulated amortization

 

 

(74,603

)

 

13,597

 

 

(3,730

)

 

2,130

 

 

(62,606

)

Total net intangible assets with finite lives

 

$

30,653

 

$

(4,427

)

$

(3,730

)

$

(371

)

$

22,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradename and other

 

 

300,257

 

 

 

 

289

 

 

300,546

 

Total intangible assets — net

 

$

330,910

 

$

(4,427

)

$

(3,730

)

$

(82

)

$

322,671

 

 

 

(1)

See Note 3 for further discussion of the impact of adoption of ASC Topic 842.

 

(2)

Amount represents the write-off of fully amortized intangible assets related to non-compete agreements, the acquisition of tradeable liquor licenses, fair values allocated to intangible assets acquired as part of acquisitions of two theatres in the U.S. and foreign currency translation adjustments.

24


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

For the year ended December 31, 2018, the Company performed a quantitative assessment for all definite and indefinite-lived tradename assets.  No events or changes in circumstances occurred during the nine months ended September 30, 2019 that indicated the carrying value of its tradename assets might exceed their estimated fair values.

Estimated aggregate future amortization expense for intangible assets is as follows:

 

For the three months ended December 31, 2019

 

$

1,254

 

For the twelve months ended December 31, 2020

 

 

4,986

 

For the twelve months ended December 31, 2021

 

 

3,150

 

For the twelve months ended December 31, 2022

 

 

3,116

 

For the twelve months ended December 31, 2023

 

 

3,083

 

Thereafter

 

 

6,536

 

Total

 

$

22,125

 

 

12.

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 indicate the carrying amount of the assets may not be fully recoverable. See discussion of the Company’s long-lived asset impairment evaluation process in Note 1 to the Company’s financial statements as included in its 2018 Annual Report on Form 10-K.  As noted in the discussion, fair value is determined based on a multiple of cash flows, which was six and a half times for the evaluations performed during the nine months ended September 30, 2019 and 2018. As of September 30, 2019, the estimated aggregate fair value of the long-lived assets impaired during the nine months ended September 30, 2019 was $27,383.

The long-lived asset impairment charges 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.

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

U.S. theatre properties and equipment

 

$

24,502

 

 

$

1,553

 

 

$

26,754

 

 

$

3,331

 

U.S. operating lease right-of-use assets

 

 

2,157

 

 

 

 

 

 

10,204

 

 

 

 

International theatre properties and equipment

 

 

645

 

 

 

88

 

 

 

6,796

 

 

 

1,689

 

International operating lease right-of-use assets

 

 

 

 

 

 

 

 

1,628

 

 

 

 

Total

 

$

27,304

 

 

$

1,641

 

 

$

45,382

 

 

$

5,020

 

 

13.

Fair Value Measurements

The Company determines fair value measurements in accordance with ASC Topic 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.

Below is a summary of liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of September 30, 2019:

 

 

Carry

 

 

Fair Value

 

Description

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Interest rate swap liabilities (1)

 

$

(18,988

)

 

$

 

 

$

 

 

$

(18,988

)

 

(1)

See further discussion of interest rate swaps at Note 6.

25


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is a summary of liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of December 31, 2018:

 

 

Carry

 

 

Fair Value

 

Description

 

Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Interest rate swap liabilities (1)

 

$

(5,093

)

 

$

 

 

$

 

 

$

(5,093

)

 

(1)

See further discussion of interest rate swaps at Note 6.

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):

 

 

Liabilities (1)

 

 

 

2019

 

Beginning balance - January 1

 

$

5,093

 

Total loss included in accumulated other comprehensive loss

 

 

15,036

 

Settlements included in interest expense

 

 

(1,141

)

Ending balance - September 30

 

$

18,988

 

(1) Represents interest rate swap liabilities.  See further discussion of interest rate swaps at Note 6.

The Company uses the market approach for fair value measurements on a nonrecurring basis in the impairment evaluations of its long-lived assets (see Note 11 and Note 12). 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, 2018, filed February 28, 2019.  There were no changes in valuation techniques and there were no transfers in or out of Level 1, Level 2 or Level 3 during the nine months ended September 30, 2019.  

14.

Foreign Currency Translation

The accumulated other comprehensive loss account in stockholders’ equity of $349,381 and $319,007 as of September 30, 2019 and December 31, 2018, respectively, primarily includes cumulative foreign currency adjustments of $335,028 and $315,300, respectively, from translating the financial statements of the Company’s international subsidiaries and the cumulative changes in fair value of the Company’s interest rate swap agreements that are designated as hedges.

As of September 30, 2019, 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.  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.  The financial information of the Company’s Argentina subsidiaries has been remeasured in U.S. dollars in accordance with ASC Topic 830, Foreign Currency Matters, effective beginning July 1, 2018.  

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

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Loss for

 

 

 

Exchange Rate as of

 

 

Nine Months Ended

 

Country

 

September 30, 2019

 

 

December 31, 2018

 

 

September 30, 2019

 

September 30, 2018

 

Brazil

 

 

4.16

 

 

 

3.88

 

 

$

(14,492

)

$

(42,588

)

Argentina (1)

 

 

57.41

 

 

 

37.68

 

 

 

 

 

(18,272

)

Chile

 

 

727.65

 

 

 

694.74

 

 

 

(4,017

)

 

(4,822

)

Colombia

 

 

3,462.00

 

 

 

3,249.75

 

 

 

(1,507

)

 

70

 

Peru

 

 

3.40

 

 

 

3.39

 

 

 

(203

)

 

(891

)

All other

 

 

 

 

 

 

 

 

 

 

491

 

 

(338

)

 

 

 

 

 

 

 

 

 

 

$

(19,728

)

$

(66,841

)

 

(1)  

Beginning July 1, 2018, Argentina was deemed highly inflationary.  The impact of translating Argentina financial results to U.S. dollars, which was not significant, has been recorded in foreign currency exchange loss on the Company’s condensed consolidated statement of income.  

 

26


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

15.

Supplemental Cash Flow Information

 

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

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Cash paid for interest

 

$

56,326

 

 

$

62,773

 

Cash paid for income taxes, net of refunds received

 

$

69,498

 

 

$

42,631

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Change in accounts payable and accrued expenses for the acquisition of theatre properties and equipment (1)

 

$

(13,642

)

 

$

7,050

 

Theatre properties acquired under capital lease

 

$

 

 

$

4,035

 

Interest expense - NCM (see Note 8)

 

$

(14,180

)

 

$

(14,875

)

Investment in NCM – receipt of common units (see Note 8)

 

$

1,552

 

 

$

5,012

 

Dividends accrued on unvested restricted stock unit awards

 

$

(486

)

 

$

(416

)

 

(1)

Additions to theatre properties and equipment included in accounts payable as of September 30, 2019 and December 31, 2018 were $23,362 and $37,004, respectively.

16.

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.

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

636,628

 

 

$

585,536

 

 

$

1,941,545

 

 

$

1,897,664

 

International

 

 

188,772

 

 

 

171,960

 

 

 

563,509

 

 

 

535,567

 

Eliminations

 

 

(3,583

)

 

 

(3,261

)

 

 

(10,758

)

 

 

(9,972

)

Total revenues

 

$

821,817

 

 

$

754,235

 

 

$

2,494,296

 

 

$

2,423,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

132,347

 

 

$

132,652

 

 

$

453,404

 

 

$

476,907

 

International

 

 

37,411

 

 

 

35,740

 

 

 

113,346

 

 

 

106,518

 

Total Adjusted EBITDA

 

$

169,758

 

 

$

168,392

 

 

$

566,750

 

 

$

583,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

50,679

 

 

$

65,458

 

 

$

148,609

 

 

$

195,104

 

International

 

 

20,664

 

 

 

17,915

 

 

 

37,903

 

 

 

50,858

 

Total capital expenditures

 

$

71,343

 

 

$

83,373

 

 

$

186,512

 

 

$

245,962

 

27


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 to Adjusted EBITDA:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

31,955

 

 

$

50,621

 

 

$

167,009

 

 

$

195,262

 

Add (deduct):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

14,053

 

 

 

16,169

 

 

 

64,152

 

 

 

59,592

 

Interest expense (1) (2)

 

 

24,967

 

 

 

27,144

 

 

 

75,037

 

 

 

82,725

 

Other income, net (3)

 

 

(9,970

)

 

 

(8,810

)

 

 

(25,079

)

 

 

(15,247

)

Loss on debt amendments and refinancing

 

 

 

 

 

 

 

 

 

 

 

1,484

 

Distributions from DCIP (4)

 

 

2,694

 

 

 

 

 

 

7,912

 

 

 

5,201

 

Other cash distributions from equity investees (5)

 

 

5,804

 

 

 

4,786

 

 

 

20,251

 

 

 

15,840

 

Depreciation and amortization (2)

 

 

67,760

 

 

 

64,971

 

 

 

196,795

 

 

 

193,656

 

Impairment of long-lived assets

 

 

27,304

 

 

 

1,641

 

 

 

45,382

 

 

 

5,020

 

Loss on disposal of assets and other

 

 

2,453

 

 

 

7,826

 

 

 

8,057

 

 

 

28,666

 

Non-cash rent expense (6)

 

 

(1,102

)

 

 

 

 

 

(3,252

)

 

 

 

Deferred lease expenses (2)

 

 

 

 

 

(20

)

 

 

 

 

 

(952

)

Amortization of long-term prepaid rents (2)

 

 

 

 

 

578

 

 

 

 

 

 

1,814

 

Share based awards compensation expense

 

 

3,840

 

 

 

3,486

 

 

 

10,486

 

 

 

10,364

 

Adjusted EBITDA (2)

 

$

169,758

 

 

$

168,392

 

 

$

566,750

 

 

$

583,425

 

 

 

(1)

Includes amortization of debt issue costs.

 

(2)

Amounts for the three and nine months ended September 30, 2019 were impacted by the adoption of ASC Topic 842 and the resulting change in the classification of certain of the Company’s leases.  

 

(3)

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

 

(4)

See discussion of cash distributions from DCIP, which were recorded as a reduction of the Company’s investment in DCIP, at Note 9.

 

(5)

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 8 and 9).  These distributions are reported entirely within the U.S. operating segment.

 

(6)

The adoption of ASC Topic 842 impacted how the Company amortizes lease related assets and liabilities such as deferred lease expenses, favorable and unfavorable lease intangible assets, long-term prepaid rents and deferred lease incentives.  Beginning January 1, 2019, these items are amortized to facility lease expense for theatre operating leases and utilities and other for equipment operating leases.  See Note 3 for discussion of the impact of ASC Topic 842.  

Financial Information About Geographic Areas

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

Revenues

 

2019

 

 

2018

 

 

2019

 

 

2018

 

U.S.

 

$

636,628

 

 

$

585,536

 

 

$

1,941,545

 

 

$

1,897,664

 

Brazil

 

 

79,776

 

 

 

65,152

 

 

 

240,263

 

 

 

218,265

 

Other international countries

 

 

108,996

 

 

 

106,808

 

 

 

323,246

 

 

 

317,302

 

Eliminations

 

 

(3,583

)

 

 

(3,261

)

 

 

(10,758

)

 

 

(9,972

)

Total

 

$

821,817

 

 

$

754,235

 

 

$

2,494,296

 

 

$

2,423,259

 

 

 

 

As of

 

 

As of

 

Theatre Properties and Equipment-net (1)

 

September 30, 2019

 

 

December 31, 2018

 

U.S.

 

$

1,408,052

 

 

$

1,479,603

 

Brazil

 

 

111,297

 

 

 

140,570

 

Other international countries

 

 

163,052

 

 

 

212,960

 

Total

 

$

1,682,401

 

 

$

1,833,133

 

 

(1) See Note 3 for discussion of impact of ASC Topic 842 on capital lease assets.  

28


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

17.

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 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 $539 and $488 of management fee revenues during the nine months ended September 30, 2019 and 2018, 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. Copper Beech 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 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 nine months ended September 30, 2019 and 2018, the aggregate amounts paid to Copper Beech for the use of the aircraft was $111 and $51, respectively.

The Company leases 14 theatres and one 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 one lease without minimum annual rent has rent based upon a specified percentage of gross sales as defined in the lease. For the nine months ended September 30, 2019 and 2018, the Company paid total rent of approximately $20,006 and $19,465, respectively, to Syufy.  During 2019, the Company began providing digital equipment support to drive-in theatres owned by Syufy.  The Company billed approximately $36 related to these services during the nine months ended September 30, 2019.  

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 will develop and operate a family entertainment center that offers bowling, gaming, movies and other amenities.  See Note 9 for further discussion.  

18.

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, 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.  

Silken Brown v. Cinemark USA, Inc., Case No. 3:13cv05669, In the United States District Court for the Northern District of California, San Francisco Division. The case presents putative class action claims for penalties and attorney's fees arising from alleged violations of the California wage statement law.  The claim is also asserted as a representative action under the California Private Attorney General Act (PAGA) for penalties. The Court granted class certification. The company denies the claims, denies that class certification is appropriate, denies that the plaintiff has standing to assert the claims alleged and is vigorously defending against the claims.  The Company denies any violation of law; however, to avoid the cost and uncertainty associated with litigation the Company and the plaintiff entered into a Joint Stipulation of Class Action Settlement and Release of Claims (the “Settlement Agreement”) to fully and finally dismiss all claims that would be brought in the case.  The Settlement Agreement was approved by the Court in September 2019.  The Company funded the appropriate amounts required under the Settlement Agreement with the administrator of the class claims in October 2019. 

29


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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.  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 tortiously 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 appealed the judgment.  Although the Company denies that it engaged in any form of circuit dealing, it cannot predict the outcome of its pending motions or 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.

 

 

30


 

Item 2.  Management’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.

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 September 30, 2019, we managed our business under two reportable operating segments – U.S. markets and international markets. See Note 16 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. 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 AC JV, LLC. NCM provides our domestic theatres with various forms of in-theatre advertising. Our Flix Media subsidiaries provide screen advertising and alternative content for our international circuit and to other international exhibitors.

Films leading the box office during the nine months ended September 30, 2019 included Avengers: Endgame, The Lion King, Toy Story 4, Captain Marvel, Spider-Man: Far from Home, Aladdin, It: Chapter Two, Us, Fast & Furious Presents: Hobbs & Shaw, and John Wick: Chapter 3 – Parabellum. Films scheduled for release during the remainder of 2019 include Star Wars: Episode IX, Frozen 2, Jumanji: The Next Level and Joker, among other films.

Film rental costs are variable in nature and fluctuate with our admissions revenues. Film rental costs as a percentage of revenues are generally higher for periods in which more blockbuster films are released. 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 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 owned 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, 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.

Critical Accounting Policies

We adopted ASC Topic 842 effective January 1, 2019, therefore, our lease accounting policy has been modified as discussed in Note 3 to our condensed consolidated financial statements.


31


 

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

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating data (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

454.5

 

 

$

427.6

 

 

$

1,371.1

 

 

$

1,389.1

 

Concession

 

 

289.5

 

 

 

264.1

 

 

 

886.1

 

 

 

831.2

 

Other

 

 

77.8

 

 

 

62.5

 

 

 

237.1

 

 

 

202.9

 

Total revenues

 

$

821.8

 

 

$

754.2

 

 

$

2,494.3

 

 

$

2,423.2

 

Cost of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

254.9

 

 

 

230.1

 

 

 

759.7

 

 

 

758.2

 

Concession supplies

 

 

51.5

 

 

 

42.7

 

 

 

157.3

 

 

 

134.6

 

Salaries and wages

 

 

103.3

 

 

 

92.5

 

 

 

308.3

 

 

 

286.0

 

Facility lease expense

 

 

87.4

 

 

 

80.6

 

 

 

262.5

 

 

 

243.9

 

Utilities and other

 

 

123.9

 

 

 

112.9

 

 

 

357.2

 

 

 

337.9

 

General and administrative expenses

 

 

44.7

 

 

 

38.3

 

 

 

127.0

 

 

 

123.7

 

Depreciation and amortization

 

 

67.8

 

 

 

64.9

 

 

 

196.8

 

 

 

193.6

 

Impairment of long-lived assets

 

 

27.3

 

 

 

1.6

 

 

 

45.4

 

 

 

5.0

 

Loss on disposal of assets and other

 

 

2.5

 

 

 

7.9

 

 

 

8.1

 

 

 

28.7

 

Total cost of operations

 

 

763.3

 

 

 

671.5

 

 

 

2,222.3

 

 

 

2,111.6

 

Operating income

 

$

58.5

 

 

$

82.7

 

 

$

272.0

 

 

$

311.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating data as a percentage of total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

 

55.3

%

 

 

56.7

%

 

 

55.0

%

 

 

57.3

%

Concession

 

 

35.2

%

 

 

35.0

%

 

 

35.5

%

 

 

34.3

%

Other

 

 

9.5

%

 

 

8.3

%

 

 

9.5

%

 

 

8.4

%

Total revenues

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

 

100.0

%

Cost of operations (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

56.1

%

 

 

53.8

%

 

 

55.4

%

 

 

54.6

%

Concession supplies

 

 

17.8

%

 

 

16.2

%

 

 

17.8

%

 

 

16.2

%

Salaries and wages

 

 

12.6

%

 

 

12.3

%

 

 

12.4

%

 

 

11.8

%

Facility lease expense

 

 

10.6

%

 

 

10.7

%

 

 

10.5

%

 

 

10.1

%

Utilities and other

 

 

15.1

%

 

 

15.0

%

 

 

14.3

%

 

 

13.9

%

General and administrative expenses

 

 

5.4

%

 

 

5.1

%

 

 

5.1

%

 

 

5.1

%

Depreciation and amortization

 

 

8.3

%

 

 

8.6

%

 

 

7.9

%

 

 

8.0

%

Impairment of long-lived assets

 

 

3.3

%

 

 

0.2

%

 

 

1.8

%

 

 

0.2

%

Loss on disposal of assets and other

 

 

0.3

%

 

 

1.0

%

 

 

0.3

%

 

 

1.2

%

Total cost of operations

 

 

92.9

%

 

 

89.0

%

 

 

89.1

%

 

 

87.1

%

Operating income

 

 

7.1

%

 

 

11.0

%

 

 

10.9

%

 

 

12.9

%

Average screen count (month end average)

 

 

6,084

 

 

 

6,019

 

 

 

6,064

 

 

 

5,990

 

Total revenues per average screen (dollars)

 

$

135,078

 

 

$

125,538

 

 

$

411,328

 

 

$

404,889

 

 

(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.

32


 

Three months ended September 30, 2019 versus September 30, 2018

Revenues. Total revenues increased $67.6 million to $821.8 million for the three months ended September 30, 2019 (“third quarter of 2019”) from $754.2 million for the three months ended September 30, 2018 (“third quarter of 2018”). The table below, presented by reportable operating segment, summarizes our revenue performance and certain key performance indicators for the three months ended September 30, 2019 and 2018.

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Constant

Currency (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

2018

 

%

Change

 

 

2019

 

2018

 

%

Change

 

 

2019

 

%

Change

 

 

2019

 

2018

 

%

Change

 

Admissions revenues (1)

 

$

351.1

 

$

333.3

 

 

5.3

%

 

$

103.4

 

$

94.3

 

 

9.7

%

 

$

114.7

 

 

21.6

%

 

$

454.5

 

$

427.6

 

 

6.3

%

Concession revenues (1)

 

$

230.4

 

$

207.9

 

 

10.8

%

 

$

59.1

 

$

56.2

 

 

5.2

%

 

$

65.4

 

 

16.4

%

 

$

289.5

 

$

264.1

 

 

9.6

%

Other revenues (1)(2)

 

$

51.5

 

$

41.1

 

 

25.3

%

 

$

26.3

 

$

21.4

 

 

22.9

%

 

$

29.9

 

 

39.7

%

 

$

77.8

 

$

62.5

 

 

24.5

%

Total revenues (1)(2)

 

$

633.0

 

$

582.3

 

 

8.7

%

 

$

188.8

 

$

171.9

 

 

9.8

%

 

$

210.0

 

 

22.2

%

 

$

821.8

 

$

754.2

 

 

9.0

%

Attendance (1)

 

 

44.1

 

 

43.7

 

 

0.9

%

 

 

29.2

 

 

26.1

 

 

11.9

%

 

 

 

 

 

 

 

 

 

73.3

 

 

69.8

 

 

5.0

%

Average ticket price (1)

 

$

7.96

 

$

7.63

 

 

4.3

%

 

$

3.54

 

$

3.61

 

 

(1.9

)%

 

$

3.93

 

 

8.9

%

 

$

6.20

 

$

6.13

 

 

1.1

%

Concession revenues per patron (1)

 

$

5.22

 

$

4.76

 

 

9.7

%

 

$

2.02

 

$

2.15

 

 

(6.0

)%

 

$

2.24

 

 

4.2

%

 

$

3.95

 

$

3.78

 

 

4.5

%

 

(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 16 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 2018. 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 increased $17.8 million primarily due to a 4.3% increase in average ticket price. The increase in average ticket price was primarily due to price increases and ticket type mix and was partially offset by the impact of the deferral of admissions revenues for loyalty points issued. Concession revenues grew $22.5 million primarily due to a 9.7% 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. Other revenues increased $10.4 million primarily due to increases in transactional fees and promotional activity.  

 

International. Admissions revenues grew $9.1 million as reported ($20.4 million in constant currency) primarily due to an 11.9% increase in attendance slightly offset by a 1.9% decrease in average ticket price (average ticket price increased 8.9% in constant currency).  Concession revenues grew $2.9 million as reported ($9.2 million in constant currency) primarily due to the 11.9% increase in attendance partially offset by a 6.0% decrease in concession revenues per patron (concession revenues per patron increased 4.2% in constant currency). Attendance increased due to the success of certain Hollywood blockbuster films in these markets and strong local product.  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.  Other revenues grew $4.9 million as reported (increased $8.5 million in constant currency) due to increases in screen advertising, promotional activity and transactional fees as a result of the attendance increase, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.

Cost of Operations. The table below summarizes our theatre operating costs (in millions) by reportable operating segment for the three months ended September 30, 2019 and 2018.

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Constant

Currency (1)

2019

 

 

2019

 

 

2018

 

Film rentals and advertising

 

$

203.5

 

 

$

185.1

 

 

$

51.4

 

 

$

45.0

 

 

$

57.1

 

 

$

254.9

 

 

$

230.1

 

Concession supplies

 

$

38.6

 

 

$

31.2

 

 

$

12.9

 

 

$

11.5

 

 

$

14.4

 

 

$

51.5

 

 

$

42.7

 

Salaries and wages

 

$

83.2

 

 

$

73.2

 

 

$

20.1

 

 

$

19.3

 

 

$

22.6

 

 

$

103.3

 

 

$

92.5

 

Facility lease expense

 

$

64.5

 

 

$

61.1

 

 

$

22.9

 

 

$

19.5

 

 

$

24.8

 

 

$

87.4

 

 

$

80.6

 

Utilities and other

 

$

91.7

 

 

$

83.0

 

 

$

32.2

 

 

$

29.9

 

 

$

36.0

 

 

$

123.9

 

 

$

112.9

 

 

(1)

Constant currency expense amounts, which are non-GAAP measurements were calculated using the average exchange rate for the corresponding month for 2018. 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.

33


 

 

U.S. Film rentals and advertising costs were $203.5 million, or 58.0% of admissions revenues, for the third quarter of 2019 compared to $185.1 million, or 55.5% of admissions revenues, for the third quarter of 2018. Concession supplies expense was $38.6 million, or 16.8% of concession revenues, for the third quarter of 2019 compared to $31.2 million, or 15.0% of concession revenues, for the third quarter of 2018. The increase in the film rentals and advertising rate was primarily due to a higher concentration of blockbuster films during the third quarter of 2019 compared to the third quarter of 2018. The increase in the concessions supplies rate was driven by the mix of concession products sold.  

Salaries and wages increased to $83.2 million for the third quarter of 2019 from $73.2 million for the third quarter of 2018 primarily due to increases in minimum and other wage rates across many states in which we operate, as well as staffing for new theatres and varied in-theatre consumer initiatives. Facility lease expense increased to $64.5 million for the third quarter of 2019 from $61.1 million for the third quarter of 2018 primarily due to new theatres and a $2.9 million impact associated with the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion).  Utilities and other costs increased to $91.7 million for the third quarter of 2019 from $83.0 million for the third quarter of 2018 primarily due to increased third party ticket sales commissions, repairs and maintenance, warranty expenses, property taxes and janitorial expenses.

 

International. Film rentals and advertising costs were $51.4 million ($57.1 million in constant currency), or 49.7% of admissions revenues, for the third quarter of 2019 compared to $45.0 million, or 47.7% of admissions revenues, for the third quarter of 2018. The increase in the film rentals and advertising rate was primarily due to the mix of films, increased promotion expenses and a decrease in virtual print fees received from distributors as the costs of digital projectors become fully reimbursed in certain countries. Concession supplies expense was $12.9 million ($14.4 million in constant currency), or 21.8% of concession revenues, for the third quarter of 2019 compared to $11.5 million, or 20.5% of concession revenues, for the third quarter of 2018. The increase in the concession supplies rate was primarily due to promotional activities and mix of premium concession products sold.

Salaries and wages increased to $20.1 million ($22.6 million in constant currency) for the third quarter of 2019 compared to $19.3 million for the third quarter of 2018.  The as reported increase was due to increased local currency wages that were primarily driven by inflation and new theatres, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.  Facility lease expense increased to $22.9 million ($24.8 million in constant currency) for the third quarter of 2019 compared to $19.5 million for the third quarter of 2018. The as reported increase was driven by higher percentage rent associated with an increase in revenues, and a $2.7 million impact associated with the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion). These increases were partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate. Utilities and other costs increased to $32.2 million ($36.0 million in constant currency) for the third quarter of 2019 compared to $29.9 million for the third quarter of 2018. The as reported increase was primarily due to increased commissions related to expanded screen advertising revenues and increased third party ticket sales commissions that were partly offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.

General and Administrative Expenses.  General and administrative expenses increased to $44.7 million for the third quarter of 2019 from $38.3 million for the third quarter of 2018. The increase was primarily due to increases in salaries and incentive compensation and increased cloud-based software costs and inflation, which were partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.

Depreciation and Amortization. Depreciation and amortization expense increased to $67.8 million during the third quarter of 2019 compared to $64.9 million during the third quarter of 2018. The increase was primarily due to theatre remodels and new theatres, offset by a $3.3 million impact from the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion).

Impairment of Long-Lived Assets.  We recorded asset impairment charges on assets held and used of $27.3 million during the third quarter of 2019 compared to $1.6 million during the third quarter of 2018. 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. Impairment charges for the third quarter of 2019 impacted four countries and impairment charges for the third quarter of 2018 impacted two countries.  See Note 12 to our condensed consolidated financial statements.

Loss on Disposal of Assets and Other. We recorded a loss on disposal of assets and other of $2.5 million during the third quarter of 2019 compared to $7.9 million during the third quarter of 2018. Activity for the third quarter of 2019 and 2018 was primarily due to the retirement of assets related to theatre remodels.

34


 

Interest Expense.  Interest costs incurred, including amortization of debt issue costs, were $25.0 million during the third quarter of 2019 compared to $27.1 million during the third quarter of 2018. The decrease was primarily due to a $2.5 million impact from the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion).

Distributions from NCM.  We recorded distributions from NCM of $2.5 million during the third quarter of 2019 compared to $2.4 million recorded during the third quarter of 2018, which were in excess of the carrying value of our Tranche 1 investment. See Note 8 to our condensed consolidated financial statements.  

Interest expense – NCM.  We recorded non-cash interest expense of $4.7 million for the third quarter of 2019 compared to $5.0 million recorded during the third quarter of 2018, related to the significant financing component associated with certain of our agreements with NCM.  See Notes 4 and 8 to our condensed consolidated financial statements for further discussion.  

Equity in Income of Affiliates. We recorded equity in income of affiliates of $15.1 million during the third quarter of 2019 compared to $14.2 million during the third quarter of 2018. See Notes 8 and 9 to our condensed consolidated financial statements for information about our equity investments.

Income Taxes. Income tax expense of $14.1 million was recorded for the third quarter of 2019 compared to $16.2 million recorded for the third quarter of 2018. The effective tax rate was approximately 30.5% for the third quarter of 2019 compared to 24.2% for the third quarter of 2018. 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.

Nine months ended September 30, 2019 versus September 30, 2018

Revenues. Total revenues increased $71.1 million to $2,494.3 million for the nine months ended September 30, 2019 (“2019 period”) from $2,423.2 million for the nine months ended September 30, 2018 (“2018 period”). The table below, presented by reportable operating segment, summarizes our revenue performance and certain key performance indicators for the nine months ended September 30, 2019 and 2018.

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Constant

Currency (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

2018

 

%

Change

 

 

2019

 

2018

 

%

Change

 

 

2019

 

%

Change

 

 

2019

 

2018

 

%

Change

 

Admissions revenues (1)

 

$

1,066.9

 

$

1,091.5

 

 

(2.3

)%

 

$

304.2

 

$

297.6

 

 

2.2

%

 

$

357.3

 

 

20.1

%

 

$

1,371.1

 

$

1,389.1

 

 

(1.3

)%

Concession revenues (1)

 

$

704.7

 

$

661.3

 

 

6.6

%

 

$

181.4

 

$

169.9

 

 

6.8

%

 

$

210.6

 

 

24.0

%

 

$

886.1

 

$

831.2

 

 

6.6

%

Other revenues (1)(2)

 

$

159.2

 

$

134.9

 

 

18.0

%

 

$

77.9

 

$

68.0

 

 

14.6

%

 

$

94.2

 

 

38.5

%

 

$

237.1

 

$

202.9

 

 

16.9

%

Total revenues (1)(2)

 

$

1,930.8

 

$

1,887.7

 

 

2.3

%

 

$

563.5

 

$

535.5

 

 

5.2

%

 

$

662.1

 

 

23.6

%

 

$

2,494.3

 

$

2,423.2

 

 

2.9

%

Attendance (1)

 

 

132.9

 

 

138.9

 

 

(4.3

)%

 

 

82.9

 

 

75.8

 

 

9.4

%

 

 

 

 

 

 

 

 

 

215.8

 

 

214.7

 

 

0.5

%

Average ticket price (1)

 

$

8.03

 

$

7.86

 

 

2.2

%

 

$

3.67

 

$

3.93

 

 

(6.6

)%

 

$

4.31

 

 

9.7

%

 

$

6.35

 

$

6.47

 

 

(1.9

)%

Concession revenues per patron (1)

 

$

5.30

 

$

4.76

 

 

11.3

%

 

$

2.19

 

$

2.24

 

 

(2.2

)%

 

$

2.54

 

 

13.4

%

 

$

4.11

 

$

3.87

 

 

6.2

%

 

(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 16 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 2018. 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 $24.6 million primarily due to a 4.3% decrease in attendance slightly offset by a 2.2% increase in average ticket price. The decrease in attendance was due to the relative consumer appeal of films during the 2019 period compared to the 2018 period. 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 grew $43.4 million primarily due to an 11.3% increase in concession revenues per patron, partially offset by the 4.3% decline in attendance. Concession revenues per patron grew primarily due to incremental sales of traditional concession products, continued expansion of concession offerings and price increases. Other revenues increased $24.3 million due to increases in transactional fees and promotional activity.  

35


 

 

International. Admissions revenues increased $6.6 million as reported (increased $59.7 million in constant currency) primarily due to a 9.4% increase in attendance, partially offset by a 6.6% decrease in average ticket price (average ticket price increased 9.7% in constant currency). Concession revenues grew $11.5 million as reported ($40.7 million in constant currency) primarily due to the 9.4% increase in attendance, partially offset by a 2.2% decrease in concession revenues per patron (concession revenues per patron increased 13.4% in constant currency). Attendance increased due to the consumer appeal of films during the 2019 period compared to the 2018 period. 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.  Other revenues grew $9.9 million as reported ($26.2 million in constant currency) due to increases in screen advertising and promotional revenues due to the attendance increase, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.

Cost of Operations. The table below summarizes our theatre operating costs (in millions) by reportable operating segment for the nine months ended September 30, 2019 and 2018.

 

 

U.S. Operating Segment

 

 

International Operating Segment

 

 

Consolidated

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

Constant

Currency (1)

2019

 

 

2019

 

 

2018

 

Film rentals and advertising

 

$

610.3

 

 

$

616.7

 

 

$

149.4

 

 

$

141.5

 

 

$

175.6

 

 

$

759.7

 

 

$

758.2

 

Concession supplies

 

$

117.6

 

 

$

98.1

 

 

$

39.7

 

 

$

36.5

 

 

$

46.2

 

 

$

157.3

 

 

$

134.6

 

Salaries and wages

 

$

247.4

 

 

$

224.3

 

 

$

60.9

 

 

$

61.7

 

 

$

72.5

 

 

$

308.3

 

 

$

286.0

 

Facility lease expense

 

$

194.1

 

 

$

183.1

 

 

$

68.4

 

 

$

60.8

 

 

$

77.8

 

 

$

262.5

 

 

$

243.9

 

Utilities and other

 

$

260.8

 

 

$

245.7

 

 

$

96.4

 

 

$

92.2

 

 

$

113.8

 

 

$

357.2

 

 

$

337.9

 

 

(1)

Constant currency expense amounts, which are non-GAAP measurements were calculated using the average exchange rate for the corresponding month for 2018. 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 $610.3 million, or 57.2% of admissions revenues, for the 2019 period compared to $616.7 million, or 56.5% of admissions revenues, for the 2018 period. Concession supplies expense was $117.6 million, or 16.7% of concession revenues, for the 2019 period compared to $98.1 million, or 14.8% of concession revenues, for the 2018 period. The increase in the concessions supplies rate was driven by the mix of concession products sold.

Salaries and wages increased to $247.4 million for the 2019 period from $224.3 million for the 2018 period primarily due to increases in minimum and other wage rates across many states in which we operate, as well as staffing for new theatres and varied in-theatre consumer initiatives. Facility lease expense increased to $194.1 million for the 2019 period from $183.1 million for the 2018 period primarily due to new theatres and an increase of $8.3 million from the impact of the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion).  Utilities and other costs increased to $260.8 million for the 2019 period from $245.7 million for the 2018 period primarily due to increases in credit card processing fees, property taxes, janitorial costs and utilities costs.

 

International. Film rentals and advertising costs were $149.4 million ($175.6 million in constant currency), or 49.1% of admissions revenues, for the 2019 period compared to $141.5 million, or 47.5% of admissions revenues, for the 2018 period. The increase in the film rentals and advertising rate was primarily due to the mix of films, increased promotion expenses and a decrease in virtual print fees received from distributors as the costs of digital projectors become fully reimbursed in certain countries. Concession supplies expense was $39.7 million ($46.2 million in constant currency), or 21.9% of concession revenues, for the 2019 period compared to $36.5 million, or 21.5% of concession revenues, for the 2018 period.  

Salaries and wages decreased to $60.9 million (increased to $72.5 million in constant currency) for the 2019 period compared to $61.7 million for the 2018 period.  The as reported decrease was due to the impact of changes in foreign currency exchange rates in certain countries in which we operate, partially offset by increased local currency wages that were driven by inflation and new theatres.  Facility lease expense increased to $68.4 million (increased to $77.8 million in constant currency) for the 2019 period compared to $60.8 million for the 2018 period.  The as reported increase was due to higher percentage rent due to an increase in revenues in local currency, incremental base rent from new theatres and an $8.1 million impact associated with the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion).  These increases were partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.  Utilities and other costs increased to $96.4 million (increased to $113.8 million in constant currency) for the 2019 period compared to $92.2 million for the 2018 period.  The as reported increase was primarily due to increased commissions as a result of increased screen advertising revenues, increased credit card processing fees and increased utilities costs that were partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.

36


 

General and Administrative Expenses.  General and administrative expenses increased to $127.0 million for the 2019 period from $123.7 million for the 2018 period. The increase was primarily due to increases in salaries and wages, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.

Depreciation and Amortization. Depreciation and amortization expense increased to $196.8 million during the 2019 period compared to $193.6 million during the 2018 period. The increase was primarily due to theatre remodels and new theatres, offset by a $9.8 million impact from the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion).

Impairment of Long-Lived Assets.  We recorded asset impairment charges on assets held and used of $45.4 million during the 2019 period compared to $5.0 million during the 2018 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. Impairment charges for the 2019 period impacted seven countries and impairment charges for the 2018 period impacted three countries.  See Note 12 to our condensed consolidated financial statements.

Loss on Disposal of Assets and Other. We recorded a loss on disposal of assets and other of $8.1 million during the 2019 period compared to $28.7 million during the 2018 period. Activity for the 2019 period was primarily due to the retirement of assets related to theatre remodels.  Activity for the 2018 period was primarily due to the retirement of assets related to theatre remodels and the accrual of a reserve for outstanding litigation (see Note 18 to the condensed consolidated financial statements).  

Interest Expense.  Interest costs incurred, including amortization of debt issue costs, were $75.0 million during the 2019 period compared to $82.7 million during the 2018 period.  The decrease was primarily due to a $7.6 million impact from the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion).

Distributions from NCM.  We recorded distributions from NCM of $9.2 million during the 2019 period compared to $12.2 million recorded during the 2018 period, which were in excess of the carrying value of our Tranche 1 investment. See Note 8 to our condensed consolidated financial statements.  

Interest expense – NCM.  We recorded non-cash interest expense of $14.2 million for the 2019 period compared to $14.9 million recorded during the 2018 period, related to the significant financing component associated with certain of our agreements with NCM.  See Notes 4 and 8 to our condensed consolidated financial statements for further discussion.  

Equity in Income of Affiliates. We recorded equity in income of affiliates of $34.0 million during the 2019 period compared to $29.2 million during the 2018 period. See Notes 8 and 9 to our condensed consolidated financial statements for information about our equity investments.

Income Taxes. Income tax expense of $64.2 million was recorded for the 2019 period compared to $59.6 million recorded for the 2018 period. The effective tax rate was approximately 27.8% for the 2019 period compared to 23.4% for the 2018 period.  The effective tax rate for the 2018 period was impacted by a credit to tax expense of $7.1 million related to the settlement of audits in the non-U.S. tax jurisdiction of Chile.  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. Our 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. Cash provided by operating activities was $397.2 million for the nine months ended September 30, 2019 compared to $350.1 million for the nine months ended September 30, 2018. The increase in cash provided by operating activities was primarily due to increased revenues and due to the level and timing of payments to suppliers during each respective period and the impact of the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion).

37


 

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 $196.3 million for the nine months ended September 30, 2019 compared to $352.5 million for the nine months ended September 30, 2018.  The higher level of cash used for investing activities during the nine months ended September 30, 2018 was primarily due to the $78.4 million acquisition of NCM common units and a higher level of capital expenditures, primarily driven by the timing and number of recliner conversions.  

Capital expenditures for the nine months ended September 30, 2019 and 2018 were as follows (in millions):

 

Period

 

New Theatres

 

 

Existing Theatres

 

 

Total

 

Nine Months Ended September 30, 2019

 

$

54.7

 

 

$

131.8

 

 

$

186.5

 

Nine Months Ended September 30, 2018

 

$

52.5

 

 

$

193.5

 

 

$

246.0

 

We operated 548 theatres with 6,082 screens worldwide as of September 30, 2019.  Theatres and screens acquired, built and closed during the nine months ended September 30, 2019 were as follows:

 

 

January 1, 2019

 

 

Built

 

 

Acquired

 

 

Closed

 

 

September 30, 2019

 

U.S

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatres

 

 

341

 

 

 

3

 

 

 

2

 

 

 

2

 

 

 

344

 

Screens

 

 

4,586

 

 

 

34

 

 

 

30

 

 

 

20

 

 

 

4,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatres

 

 

205

 

 

 

1

 

 

 

 

 

2

 

 

 

204

 

Screens

 

 

1,462

 

 

 

4

 

 

 

 

 

14

 

 

 

1,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Worldwide

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Theatres

 

 

546

 

 

 

4

 

 

 

2

 

 

 

4

 

 

 

548

 

Screens

 

 

6,048

 

 

 

38

 

 

 

30

 

 

 

34

 

 

 

6,082

 

As of September 30, 2019, we had the following signed commitments (costs in millions):

 

 

Theatres

 

 

Screens

 

 

Estimated Cost

 

Remainder of 2019

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

1

 

 

 

12

 

 

$

64

 

International

 

 

6

 

 

 

51

 

 

$

17

 

Total

 

 

7

 

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsequent to 2019

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

13

 

 

 

154

 

 

$

43

 

International

 

 

9

 

 

 

60

 

 

$

35

 

Total

 

 

22

 

 

 

214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commitments at September 30, 2019

 

 

29

 

 

 

277

 

 

$

159

 

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 used for financing activities was $139.1 million for the nine months ended September 30, 2019 compared to $144.5 million for the nine months ended September 30, 2018.  The decrease was primarily due to the payment of debt issuance costs associated with the amendment of our senior secured credit facility during the nine months ended September 30, 2018 and the impact of the adoption of ASC Topic 842 (see Note 3 to the condensed consolidated financial statements for further discussion), partially offset by an increase in the quarterly cash dividend from $0.32 to $0.34 per share of common stock.  

38


 

We, at the discretion of the board of directors and subject to applicable law, anticipate paying regular quarterly 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 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 September 30, 2019 (in millions):

 

Cinemark USA, Inc. term loan

 

 

648.0

 

Cinemark USA, Inc. 5.125% senior notes due 2022

 

 

400.0

 

Cinemark USA, Inc. 4.875% senior notes due 2023

 

 

755.0

 

Other

 

 

1.4

 

Total long-term debt

 

$

1,804.4

 

Less current portion

 

 

8.0

 

Subtotal long-term debt, less current portion

 

$

1,796.4

 

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

 

 

24.7

 

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

 

$

1,771.7

 

 

As of September 30, 2019, we had $98.8 million in available borrowing capacity on our revolving credit line.

Contractual Obligations

There have been no 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, 2018 filed February 28, 2019.

Off-Balance Sheet Arrangements

Other than operating leases and purchase commitments disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 filed February 28, 2019, we 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 March 2025, and a $100.0 million revolving credit line, with a maturity date of December 2022 (collectively referred to as the “Credit Agreement”).

On March 29, 2018, Cinemark USA, Inc., amended the Credit Agreement to extend the maturity of the term loan to March 29, 2025, reduce the rate at which the term loan bears interest by 0.25% and to reduce the amount of real property required to be mortgaged to secure the loans. Under the amended Credit Agreement, quarterly principal payments of $1.6 million are due on the term loan through December 31, 2024, with a final principal payment of $613.4 million due on March 29, 2025.

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 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 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 0.50% to 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 1.50% to 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.  

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.

39


 

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, not to exceed 5.0 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.

We have three 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 6 of our condensed consolidated financial statements for discussion of the interest rate swaps.

At September 30, 2019, there was $648.0 million outstanding under the term loan and no borrowings outstanding under the $100.0 million revolving credit line. Cinemark USA, Inc. had $98.8 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, 2019 was approximately 4.3% per annum.

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 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. The 5.125% Senior Notes mature on December 15, 2022.

The indenture to the 5.125% Senior Notes contains covenants including limitations on the amount of dividends that could be paid by Cinemark USA, Inc. As of September 30, 2019, Cinemark USA, Inc. could have distributed up to approximately $2,357.7 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. The indenture 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.

Cinemark USA, Inc. 4.875% Senior Notes

On May 24, 2013, Cinemark USA, Inc. issued $530.0 million aggregate principal amount of 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. 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 on the amount of dividends that Cinemark USA, Inc. can pay. The indenture 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.

Covenant Compliance

As of September 30, 2019, we believe we were in full compliance with all agreements, including all related covenants, governing our outstanding debt.

 

40


 

Item 3. Quantitative and Qualitative 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 September 30, 2019, we had an aggregate of approximately $198.0 million of variable rate debt outstanding.  Based on the interest rates in effect on the variable rate debt outstanding at September 30, 2019, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $2.0 million.

The table below provides information about our fixed rate and variable rate long-term debt agreements as of September 30, 2019:

 

 

 

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

 

 

Average

 

 

 

(in millions)

 

 

Interest

 

 

 

2020

 

2021

 

2022

 

2023

 

2024

 

Thereafter

 

Total

 

 

Fair Value

 

 

Rate

 

Fixed rate

 

$

1.4

 

$

 

$

 

$

1,155.0

 

$

 

$

450.0

 

$

1,606.4

 

 

$

1,626.4

 

 

 

4.8

%

Variable rate

 

 

6.6

 

 

6.6

 

 

6.6

 

 

6.6

 

 

6.6

 

 

165.0

 

 

198.0

 

 

 

198.7

 

 

 

3.8

%

Total debt

 

$

8.0

 

$

6.6

 

$

6.6

 

$

1,161.6

 

$

6.6

 

$

615.0

 

$

1,804.4

 

 

$

1,825.1

 

 

 

 

 

 

Interest Rate Swap Agreements

All of our current interest rate swap agreements qualify for cash flow hedge accounting.  The fair values of the interest 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 6 to the condensed consolidated financial statements for further discussion of the interest rate swap agreements.

Foreign Currency Exchange Rate Risk

Other than the devaluation of the Argentine peso, discussed in Note 14 to the condensed consolidated financial statements, 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, 2018 filed February 28, 2019.

Item 4. Controls and Procedures

Evaluation of the Effectiveness of Disclosure Controls and Procedures

As of September 30, 2019, 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 September 30, 2019, 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 September 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

41


 

PART II - OTHER INFORMATION

Other than the recent developments discussed in Note 18, 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, 2018 filed February 28, 2019.

Item 1A. Risk Factors

There have been no material changes from risk factors previously disclosed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 filed February 28, 2019.

42


 

Item 6. Exhibits

 

 

 

 

*10.1

 

First Amendment to Amended and Restated Exhibitor Services Agreement between National Cinemedia, LLC and Cinemark USA, Inc., dated as of September 17, 2019.

 

 

 

*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

 

The following material from Cinemark Holdings, Inc.’s Form 10-Q for the quarter ended September 30, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language), filed herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.

 

 

 

* 104

 

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

 

*

filed herewith.

43


 

SIGNATURES

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 5, 2019

 

 

 

 

 

 

 

 

 

 

 

/s/ Mark Zoradi

 

 

 

 

Mark Zoradi

 

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

 

/s/ Sean Gamble

 

 

 

 

Sean Gamble

 

 

 

 

Chief Financial Officer

 

 

44

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