NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
1.
|
The Company and Basis of Presentation
|
The Company and its subsidiaries operate 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, 2019, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. Majority-owned subsidiaries of which the Company has control 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, 2019, included in the Annual Report on Form 10-K filed February 21, 2020 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be achieved for the full year.
The outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry. The social and economic effects are widespread, and the situation continues to evolve. As a movie exhibitor that operates spaces where patrons gather in close proximity, the Company’s business has been, and continues to be, significantly impacted by protective actions taken by governmental authorities to control the spread of the pandemic. To comply with government mandates, the Company temporarily closed all of its theatres in the U.S. and Latin America effective March 17, 2020 and March 18, 2020, respectively.
Because of the Company’s focus on maintaining a healthy balance sheet and low leverage, the Company believes it entered the global COVID-19 crisis in a strong financial position. Even if the Company’s theatres remained closed for the remainder of the year, the Company believes it has sufficient cash to sustain operations into 2021. Nonetheless, the COVID-19 pandemic has had and may continue to have adverse effects on our business, results of operations, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness. In conjunction with the temporary closure of its theatres in March 2020, the Company implemented temporary personnel and salary reductions, halted non-essential operating and capital expenditures, suspended its quarterly dividend, negotiated modified timing and/or abatement of contractual payments with landlords and other major suppliers.
The Company has elected to take advantage of certain tax-related benefits available under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) signed into U.S. federal law on March 27, 2020. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss (“NOL”) utilization and carryback periods, modifications to the net interest deduction limitations and a technical correction to the 2017 Tax Cuts and Jobs Act, which makes certain qualified improvement property eligible for bonus depreciation. The Company expects to receive approximately $20,000 in cash tax refunds related to qualified improvement property expenditures from 2018 and 2019, to defer payment of employer social security payroll taxes for 2020, to receive payroll tax credits for expenses related to paying wages and health benefits to employees who were not working as a result of closures and reduced receipts associated with COVID-19, and to apply tax losses incurred in 2020 to prior year income for refunds when its 2020 return is filed in 2021. The Company continues to review and evaluate other available potential benefits under the CARES Act as well as any future legislation signed into law during 2020. If the Company receives certain government disaster relief assistance, it may be subject to certain requirements imposed by the government on the recipients of the aid including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt, incurrence of additional indebtedness and other similar restrictions until the aid is repaid or redeemed
8
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
in full. However, the Company cannot predict the manner in which such benefits will be allocated or administered and cannot predict whether it will be able to access such benefits in a timely manner or at all.
The Company continues to evaluate availability of new studio content, the status of the COVID-19 pandemic and local government regulations in assessing its reopening plans. The Company reopened five of its domestic theatres in June 2020 as part of its test-and-learn strategy to define training, communication, implementation and execution of enhanced health and safety protocols. These theatres opened to reduced operating hours with library content and “welcome back” pricing for tickets and concession products to encourage patrons to return to the movies. The Company expanded its test-and-learn strategy to ten additional theatres on July 31, 2020 to further assess protocols and analyze results in other markets across the U.S. The Company is evaluating the timing of its phased reopening of additional theatres, which is subject to the status of the COVID-19 pandemic, local government regulations and availability of new studio content. The Company is still evaluating the timing of reopening of its theatres in Latin America.
The Company has implemented health and safety protocols in its theatres as a result of the pandemic for the safety of its employees and guests including, but not limited to, the following:
|
•
|
staggering showtimes to maximize physical distancing
|
|
•
|
employing seat buffering technology to ensure social distancing within the auditorium
|
|
•
|
implementing contactless transactions, such as limiting the use of cash to the box office and eliminating the paper ticket stub
|
|
•
|
requiring face masks for all guests within the theater, which may only be removed for eating and drinking in the auditoriums
|
|
•
|
substantially raising fresh-air rates of our building HVAC systems by adding purge cycles and constantly using supply fans to increase the total volume of fresh, outside air flowing into our theaters
|
|
•
|
using vacuums equipped with new HEPA filters that trap microscopic particles, including COVID-19
|
|
•
|
implementing stringent disinfecting and sanitizing protocols and supply of hand sanitizer and seat wipes for patrons
|
|
•
|
requiring that employees receive special training, participate in wellness check-ins and use personal protective wear, including face masks and gloves
|
With these comprehensive health and safety protocols in place, the Company believes it can more safely operate theaters while prioritizing the health of employees, guests and communities. The Company will continue to evolve these protocols based on changes to recommendations by the Centers for Disease Control and Prevention and local government mandates, as well as the Company’s experiences as it reopens theatres.
Restructuring Charges
In addition to the Company’s initial actions in response to the COVID-19 pandemic discussed above, during June 2020, Company management approved and announced a restructuring plan to realign its operations to create a more efficient cost structure (referred to herein as the “2020 Restructuring Plan”). The 2020 Restructuring Plan primarily includes a permanent headcount reduction at its domestic corporate office and the permanent closure of thirteen domestic and seven international theatres. The Company recorded $19,538 in restructuring costs on the condensed consolidated statement of income for the three and six months ended June 30, 2020. The following table summarizes the costs of the 2020 Restructuring Plan and the remaining liability at June 30, 2020:
|
|
U.S. Operating Segment
|
|
|
International Operating Segment
|
|
|
Consolidated
|
|
|
|
Employee-related Costs
|
|
Facility Closure Costs
|
|
Total Charges
|
|
|
Employee-related Costs
|
|
Facility Closure Costs
|
|
Total Charges
|
|
|
Employee-related Costs
|
|
Facility Closure Costs
|
|
Total Charges
|
|
Restructuring charges during the three months ended June 30, 2020
|
|
$
|
8,955
|
|
$
|
7,589
|
|
$
|
16,544
|
|
|
$
|
163
|
|
$
|
2,831
|
|
$
|
2,994
|
|
|
$
|
9,118
|
|
$
|
10,420
|
|
$
|
19,538
|
|
Amounts paid
|
|
|
(90
|
)
|
|
(482
|
)
|
|
(572
|
)
|
|
|
—
|
|
|
(42
|
)
|
|
(42
|
)
|
|
|
(90
|
)
|
|
(524
|
)
|
|
(614
|
)
|
Noncash write-offs
|
|
|
—
|
|
|
88
|
|
|
88
|
|
|
|
—
|
|
|
(2,374
|
)
|
|
(2,374
|
)
|
|
|
—
|
|
|
(2,286
|
)
|
|
(2,286
|
)
|
Reserve balance at June 30, 2020
|
|
$
|
8,865
|
|
$
|
7,195
|
|
$
|
16,060
|
|
|
$
|
163
|
|
$
|
415
|
|
$
|
578
|
|
|
$
|
9,028
|
|
$
|
7,610
|
|
$
|
16,638
|
|
The unpaid and accrued restructuring costs of $16,638 are reflected in accounts payable and accrued expenses on the condensed consolidated balance sheet as of June 30, 2020.
9
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
3.
|
New Accounting Pronouncements
|
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, (“ASU 2019-12”). The purpose of ASU 2019-12 is to simplify the accounting for income taxes. The improvements in ASU 2019-12 include removing certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. ASU 2019-12 also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within that year. The amendments in ASU 2019-12 should be applied prospectively. The Company is evaluating the impact of ASU 2019-12 and does not expect ASU-2019-12 to have a significant impact on the condensed consolidated financial statements.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, (“ASU 2020-04”). The purpose of ASU 2020-04 is to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. More specifically, the amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Company is evaluating the impact of ASU 2020-04 and its impact on the condensed consolidated financial statements.
Lease Deferrals and Abatements
Upon the temporary closure of theatres in March 2020, the Company initiated discussions with landlords to negotiate the deferral of rent and other lease-related payments while theatres remained closed. The amendments signed with the landlords involve varying concessions, including the abatement of rent payments during closure, deferral of all or a portion of rent payments to later periods and deferrals of rent payments to later periods combined with an early exercise of an existing renewal option or extension of the lease term. In some cases, the Company is entitled to rent-free periods while theatres remain closed in certain locations due to local regulations. Total payments withheld and/or deferred as of June 30, 2020 were approximately $42,691 and are included in accounts payable and accrued expenses in the condensed consolidated balance sheet. Additional negotiations of payment terms are still in process.
In April 2020, the FASB staff released guidance indicating that in response to the COVID-19 crisis, an entity would not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842 to those contracts. The election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For example, this election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.
The Company elected to not remeasure the related lease liabilities and right-of-use assets for those leases where the concessions and deferrals did not result in a significant change in total payments under the lease and where the remaining lease term did not change as a result of the negotiation. For those leases that were renewed or extended as a result of the negotiation to defer rent payments, the Company recalculated the related lease liability and right-of-use asset based on the new terms. During the three months ended June 30, 2020, the Company did not recognize a material amount of negative lease expense related to rent abatement concessions.
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 Company’s aggregate lease costs, by lease classification, for the periods presented.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Lease Cost
|
Classification
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating lease costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment (1)
|
Utilities and other
|
$
|
131
|
|
|
$
|
1,861
|
|
|
$
|
1,672
|
|
|
$
|
3,604
|
|
Real Estate (2)(3)
|
Facility lease expense
|
|
63,460
|
|
|
|
89,849
|
|
|
|
145,118
|
|
|
|
174,634
|
|
Total operating lease costs
|
|
$
|
63,591
|
|
|
$
|
91,710
|
|
|
$
|
146,790
|
|
|
$
|
178,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets
|
Depreciation and amortization
|
$
|
3,680
|
|
|
$
|
3,739
|
|
|
$
|
7,387
|
|
|
$
|
7,479
|
|
Interest on lease liabilities
|
Interest expense
|
|
1,757
|
|
|
|
1,984
|
|
|
|
3,608
|
|
|
|
4,005
|
|
Total finance lease costs
|
|
$
|
5,437
|
|
|
$
|
5,723
|
|
|
$
|
10,995
|
|
|
$
|
11,484
|
|
(1)
|
Includes approximately $(985) and $736 of short-term lease payments for the three months ended June 30, 2020 and 2019, respectively. Includes approximately $(572) and $1,356 of short-term lease payments for the six months ended June 30, 2020 and 2019, respectively. The amounts for the three and six months ended June 30, 2020 were impacted by i) a decrease in short term lease payments while theatres were closed and ii) rent abatements on leases that were not recalculated in accordance with the FASB guidance discussed above, which resulted in variable rent credits in the amount of the rent abatements.
|
(2)
|
Includes approximately $(2,910) and $20,344 of variable lease payments based on a change in index, such as CPI or inflation, variable payments based on revenues or attendance and variable common area maintenance costs for the three months ended June 30, 2020 and 2019, respectively. Includes approximately $9,337 and $35,618 of variable lease payments based on a change in index, such as CPI or inflation, variable payments based on revenues or attendance and variable common area maintenance costs for the six months ended June 30, 2020 and 2019. The amounts for the three and six months ended June 30, 2020 were impacted by rent abatements on leases that were not recalculated in accordance with the FASB guidance discussed above, which resulted in variable rent credits in the amount of the rent abatements.
|
(3)
|
Approximately $327 and $382 of lease payments are included in general and administrative expenses primarily related to office leases for the three months ended June 30, 2020 and 2019, respectively. Approximately $787 and $784 of lease payments are included in general and administrative expenses primarily related to office leases for the six months ended June 30, 2020 and 2019, respectively.
|
The following table represents the minimum cash lease payments included in the measurement of lease liabilities and the non-cash addition of assets for the periods indicated.
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
Other Information
|
|
2020
|
|
|
2019
|
|
Contractual cash payments included in the measurement of lease liabilities(1)
|
|
|
|
|
|
|
|
|
Cash outflows for operating leases
|
|
$
|
138,025
|
|
|
$
|
141,264
|
|
Cash outflows for finance leases - operating activities
|
|
$
|
3,579
|
|
|
$
|
3,893
|
|
Cash outflows for finance leases - financing activities
|
|
$
|
7,620
|
|
|
$
|
7,131
|
|
Non-cash amount of leased assets obtained in exchange for:
|
|
|
|
|
|
|
|
|
Operating lease liabilities - real estate
|
|
$
|
60,788
|
|
|
$
|
37,582
|
|
Operating lease liabilities - equipment
|
|
$
|
56
|
|
|
$
|
339
|
|
Finance lease liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
(1)
|
As discussed above at Lease Deferrals and Abatements, the Company negotiated certain lease amendments to defer and/or abate contractual payments as a result of the COVID-19 pandemic and temporary closure of theatres. In accordance with FASB Staff guidance, the Company did not recalculate lease liabilities and right of use assets for amendments that did not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Contractual payment amounts for the six months ended June 30, 2020 above are prior to the impact of deferred or abated rent amounts.
|
As of June 30, 2020, the Company had signed lease agreements with total noncancelable lease payments of approximately $220,403 related to theatre leases that had not yet commenced. The timing of lease commencement is dependent on the completion of construction of the related theatre facility. Additionally, these amounts are based on estimated square footage and costs to construct each facility and may be subject to adjustment upon final completion of each construction project. In accordance with ASC Topic
11
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
842, fixed minimum lease payments related to these theatres are not included in the right-of-use assets and lease liabilities as of June 30, 2020. There were no noncancelable lease agreements signed, but not yet commenced, related to equipment leases as of June 30, 2020.
The Company’s patrons have the option to purchase movie tickets well in advance of a movie showtime or right before the movie showtime, or at any point in between those two timeframes depending on seat availability. The Company recognizes such admissions revenues when the showtime for a purchased movie ticket has passed. Concession revenues are recognized when products are sold to the consumer. Other revenues primarily consist of screen advertising and screen rental revenues, promotional income, studio trailer placements and transactional fees. The Company sells gift cards and discount ticket vouchers, the proceeds from which are recorded as deferred revenues. Deferred revenues for gift cards and discount ticket vouchers are recognized when they are redeemed for concession items or, if redeemed for movie tickets, when the showtime has passed. The Company offers a subscription program in the U.S. whereby patrons can pay a monthly fee to receive a monthly credit for use towards a future movie ticket purchase. The Company records the monthly subscription program fees as deferred revenues and records admissions revenues when the showtime for a movie ticket purchased with a credit has passed. The Company has loyalty programs in the U.S. and many of its international locations that either have a prepaid annual membership fee or award points to customers as purchases are made. For those loyalty programs that have an annual membership fee, the Company recognizes the fee collected as other revenues on a straight-line basis over the term of the membership. For those loyalty programs that award points to customers based on their purchases, the Company records a portion of the original transaction proceeds as deferred revenues based on the number of reward points issued to customers and recognizes the deferred revenues when the customer redeems such points. The value of loyalty points issued is based on the estimated fair value of the rewards offered. The Company records breakage revenue on gift cards and discount ticket vouchers generally based on redemption activity and historical experience with unused balances. The Company records breakage revenue upon the expiration of loyalty points and subscription credits. Advances collected on concession and other contracts are deferred and recognized during the period in which the Company satisfies the related performance obligations, which may differ from the period in which the advances are collected. These advances are recognized on either a straight-line basis over the term of the contracts or as the Company meets its performance obligations in accordance with the terms of the contracts.
Accounts receivable as of June 30, 2020 and December 31, 2019 included approximately $7,870 and $31,620 of receivables, respectively, related to contracts with customers. The Company did not record any assets related to the costs to obtain or fulfill a contract with customers during the six months ended June 30, 2020 or June 30, 2019.
Disaggregation of Revenue
The following tables present revenues for the three and six months ended June 30, 2020 and 2019, disaggregated based on major type of good or service and by reportable operating segment and disaggregated based on timing of revenue recognition.
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30, 2020
|
|
|
June 30, 2020
|
|
|
U.S.
|
|
International
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
|
|
|
Operating
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
Operating
|
|
|
|
|
|
Major Goods/Services
|
Segment (1)
|
|
Segment
|
|
Consolidated
|
|
|
Segment (1)
|
|
|
Segment
|
|
|
Consolidated
|
|
Admissions revenues
|
$
|
37
|
|
$
|
—
|
|
$
|
37
|
|
|
$
|
232,363
|
|
|
$
|
60,136
|
|
|
$
|
292,499
|
|
Concession revenues
|
|
55
|
|
|
69
|
|
|
124
|
|
|
|
152,813
|
|
|
|
37,667
|
|
|
|
190,480
|
|
Screen advertising, screen rental and promotional revenues(2)
|
|
7,883
|
|
|
478
|
|
|
8,361
|
|
|
|
26,092
|
|
|
|
12,924
|
|
|
|
39,016
|
|
Other revenues
|
|
180
|
|
|
272
|
|
|
452
|
|
|
|
24,330
|
|
|
|
6,265
|
|
|
|
30,595
|
|
Total revenues
|
$
|
8,155
|
|
$
|
819
|
|
$
|
8,974
|
|
|
$
|
435,598
|
|
|
$
|
116,992
|
|
|
$
|
552,590
|
|
12
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30, 2019
|
|
|
June 30, 2019
|
|
|
U.S.
|
|
International
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
|
|
|
Operating
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
Operating
|
|
|
|
|
|
Major Goods/Services
|
Segment (1)
|
|
Segment
|
|
Consolidated
|
|
|
Segment (1)
|
|
|
Segment
|
|
|
Consolidated
|
|
Admissions revenues
|
$
|
406,923
|
|
$
|
114,149
|
|
$
|
521,072
|
|
|
$
|
715,762
|
|
|
$
|
200,850
|
|
|
$
|
916,612
|
|
Concession revenues
|
|
274,926
|
|
|
70,356
|
|
|
345,282
|
|
|
|
474,312
|
|
|
|
122,294
|
|
|
|
596,606
|
|
Screen advertising, screen rental and promotional revenues
|
|
22,302
|
|
|
19,101
|
|
|
41,403
|
|
|
|
42,882
|
|
|
|
33,139
|
|
|
|
76,021
|
|
Other revenues
|
|
38,775
|
|
|
11,224
|
|
|
49,999
|
|
|
|
64,786
|
|
|
|
18,454
|
|
|
|
83,240
|
|
Total revenues
|
$
|
742,926
|
|
$
|
214,830
|
|
$
|
957,756
|
|
|
$
|
1,297,742
|
|
|
$
|
374,737
|
|
|
$
|
1,672,479
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2020
|
|
|
|
U.S.
|
|
International
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
|
|
|
|
Operating
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
Operating
|
|
|
|
|
|
Timing of Recognition
|
|
Segment (1)
|
|
Segment
|
|
Consolidated
|
|
|
Segment (1)
|
|
|
Segment
|
|
|
Consolidated
|
|
Goods and services transferred at a point in time
|
|
$
|
89
|
|
$
|
77
|
|
$
|
166
|
|
|
$
|
401,531
|
|
|
$
|
101,329
|
|
|
$
|
502,860
|
|
Goods and services transferred over time(2)
|
|
|
8,066
|
|
|
742
|
|
|
8,808
|
|
|
|
34,067
|
|
|
|
15,663
|
|
|
|
49,730
|
|
Total
|
|
$
|
8,155
|
|
$
|
819
|
|
$
|
8,974
|
|
|
$
|
435,598
|
|
|
$
|
116,992
|
|
|
$
|
552,590
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2019
|
|
|
|
U.S.
|
|
International
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
|
|
|
|
Operating
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
Operating
|
|
|
|
|
|
Timing of Recognition
|
|
Segment (1)
|
|
Segment
|
|
Consolidated
|
|
|
Segment (1)
|
|
|
Segment
|
|
|
Consolidated
|
|
Goods and services transferred at a point in time
|
|
$
|
718,582
|
|
$
|
192,422
|
|
$
|
911,004
|
|
|
$
|
1,250,765
|
|
|
$
|
335,531
|
|
|
$
|
1,586,296
|
|
Goods and services transferred over time
|
|
|
24,344
|
|
|
22,408
|
|
|
46,752
|
|
|
|
46,977
|
|
|
|
39,206
|
|
|
|
86,183
|
|
Total
|
|
$
|
742,926
|
|
$
|
214,830
|
|
$
|
957,756
|
|
|
$
|
1,297,742
|
|
|
$
|
374,737
|
|
|
$
|
1,672,479
|
|
|
(1)
|
U.S. segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 17 for additional information on intercompany eliminations.
|
|
(2)
|
Amount includes amortization of NCM screen advertising advances. See Deferred Revenues below.
|
13
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Deferred Revenues
The following table presents changes in the Company’s advances and deferred revenues for the six months ended June 30, 2020.
|
|
NCM screen advertising advances (1)
|
|
|
Other
Deferred
Revenues (2)
|
|
|
Total
|
|
Balance at January 1, 2020
|
|
$
|
348,354
|
|
|
$
|
138,426
|
|
|
$
|
486,780
|
|
Amounts recognized as accounts receivable
|
|
|
—
|
|
|
|
3,147
|
|
|
|
3,147
|
|
Cash received from customers in advance
|
|
|
—
|
|
|
|
44,557
|
|
|
|
44,557
|
|
Common units received from NCM (see Note 9)
|
|
|
3,620
|
|
|
|
—
|
|
|
|
3,620
|
|
Interest accrued related to significant financing component
|
|
|
11,825
|
|
|
|
—
|
|
|
|
11,825
|
|
Revenue recognized during period
|
|
|
(15,612
|
)
|
|
|
(43,617
|
)
|
|
|
(59,229
|
)
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
(1,747
|
)
|
|
|
(1,747
|
)
|
Balance at June 30, 2020
|
|
$
|
348,187
|
|
|
$
|
140,766
|
|
|
$
|
488,953
|
|
|
(1)
|
See Note 9 for the maturity of balance as of June 30, 2020.
|
|
(2)
|
Includes liabilities associated with outstanding gift cards and discount ticket vouchers, points or rebates outstanding under the Company’s loyalty and membership programs and revenues not yet recognized for screen advertising, screen rental and other promotional activities. Classified as accounts payable and accrued expenses or other long-term liabilities on the condensed consolidated balance sheet.
|
The table below summarizes the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of June 30, 2020 and when the Company expects to recognize this revenue.
|
|
Twelve Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
Remaining Performance Obligations
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
Other Deferred revenue
|
|
$
|
125,777
|
|
|
$
|
14,893
|
|
|
$
|
96
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
140,766
|
|
The Company considers its unvested share based payment awards, which contain non-forfeitable rights to dividends, participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share for the two classes of stock (common stock and unvested restricted stock) is calculated by dividing net income by the weighted average number of shares of common stock and unvested restricted stock outstanding during the reporting period. Diluted earnings per share is calculated using the weighted average number of shares of common stock plus the potentially dilutive effect of common equivalent shares outstanding determined under both the two class method and the treasury stock method.
14
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The following table presents computations of basic and diluted earnings per share under the two-class method:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cinemark Holdings, Inc.
|
|
$
|
(170,389
|
)
|
|
$
|
100,971
|
|
|
$
|
(229,980
|
)
|
|
$
|
133,699
|
|
Loss (earnings) allocated to participating share-based awards (1)
|
|
|
1,329
|
|
|
|
(656
|
)
|
|
|
1,514
|
|
|
|
(779
|
)
|
Net income (loss) attributable to common stockholders
|
|
$
|
(169,060
|
)
|
|
$
|
100,315
|
|
|
$
|
(228,466
|
)
|
|
$
|
132,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common stock outstanding
|
|
|
116,666
|
|
|
|
116,325
|
|
|
|
116,581
|
|
|
|
116,253
|
|
Common equivalent shares for restricted stock units (2)
|
|
|
—
|
|
|
|
223
|
|
|
|
—
|
|
|
|
271
|
|
Diluted common equivalent shares
|
|
|
116,666
|
|
|
|
116,548
|
|
|
|
116,581
|
|
|
|
116,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to common stockholders
|
|
$
|
(1.45
|
)
|
|
$
|
0.86
|
|
|
$
|
(1.96
|
)
|
|
$
|
1.14
|
|
Diluted earnings (loss) per share attributable to common stockholders
|
|
$
|
(1.45
|
)
|
|
$
|
0.86
|
|
|
$
|
(1.96
|
)
|
|
$
|
1.14
|
|
|
(1)
|
For the three months ended June 30, 2020 and 2019, a weighted average of approximately 917 and 763 shares of restricted stock, respectively, were considered participating securities. For the six months ended June 30, 2020 and 2019, a weighted average of approximately 771 and 685 shares of restricted stock, respectively, were considered participating securities.
|
|
(2)
|
For the three months ended June 30, 2020, approximately 475 common equivalent shares for restricted stock units were excluded because they were anti-dilutive. For the six months ended June 30, 2020, approximately 28 common equivalent shares for restricted stock units were excluded because they were anti-dilutive.
|
7.
|
Long Term Debt Activity
|
Senior Secured Credit Facility
Cinemark USA, Inc. has a senior secured credit facility that includes a $700,000 term loan and a $100,000 revolving credit line (the “Credit Agreement”). On March 25, 2020, the Company borrowed $98,800 under the revolving credit line of the Credit Agreement.
As of June 30, 2020, there was $643,029 outstanding under the term loan and $98,800 outstanding under the revolving credit line. As of June 30, 2020, approximately $1,200 was available for borrowing. Quarterly principal payments of $1,649 are due on the term loan through December 31, 2024, with a final principal payment of $613,351 due on March 29, 2025. The revolving credit line matures November 28, 2022.
The average interest rate on outstanding term loan borrowings under the Credit Agreement at June 30, 2020 was approximately 3.4% per annum, after giving effect to the interest rate swap agreements discussed below. The average interest rate on the outstanding revolver borrowings was 1.8% at June 30, 2020.
On April 17, 2020, in conjunction with the issuance of the 8.750% Secured Notes discussed below, the Company obtained a waiver of the maintenance covenant from the majority of revolving lenders under the Credit Agreement for the fiscal quarters ending September 30, 2020 and December 31, 2020.
8.750% Secured Notes
On April 20, 2020, Cinemark USA, Inc. issued $250,000 8.750% senior secured notes (the “8.750% Secured Notes”). The notes will mature on May 1, 2025; provided, however, that if (i) on September 13, 2022, the aggregate outstanding principal amount of the 5.125% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50,000, the notes will mature on September 14, 2022 and (ii) on February 27, 2023, the aggregate outstanding principal amount of the 4.875% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50,000, the notes will mature on February 28, 2023. Interest on the notes will be payable on May 1 and November 1 of each year, beginning on November 1, 2020.
15
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The 8.750% Secured Notes will be fully and unconditionally guaranteed on a joint and several senior basis by certain of the Company’s subsidiaries that guarantee, assume or in any other manner become liable with respect to any of the Company’s or its guarantors’ other debt. If the Company cannot make payments on the 8.750% Secured Notes when they are due, the Company’s guarantors must make them instead. Under certain circumstances, the guarantees may be released without action by, or the consent of, the holders of the 8.750% Secured Notes.
The 8.750% Secured Notes and the guarantees will be the Company’s and its guarantors’ senior obligations and they will:
|
•
|
rank effectively senior in right of payment to the Company’s and its guarantors’ existing and future debt that is not secured by the collateral as described within the indentures to the 8.750% Secured Notes (“Collateral”), including all obligations under the Credit Agreement, and unsecured obligations, including the existing senior notes, in each case to the extent of the value of the collateral;
|
|
•
|
rank effectively junior to the Company’s and its guarantors’ existing and future debt secured by assets that are not part of the Collateral to the extent of the value of the collateral securing such debt, including all obligations under the Credit Agreement;
|
|
•
|
otherwise rank equally in right of payment to the Company’s and its guarantors’ existing and future senior debt, including debt under the Credit Agreement and the existing senior notes;
|
|
•
|
rank senior in right of payment to the Company’s and its guarantors’ future subordinated debt; and
|
|
•
|
be structurally subordinated to all existing and future debt and other liabilities of the Company’s non-guarantor subsidiaries.
|
The indenture to the 8.750% Secured Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. Upon a change of control, as defined in the indenture governing the 8.750% Secured Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 8.750% Secured Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indenture governing the 8.750% Secured Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies a coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances.
Additional Borrowings of International Subsidiaries
During May 2020, the Company’s subsidiary in Peru borrowed the USD equivalent of approximately $2,811 under a 1% loan. Principal payments are due monthly beginning in July 2021 through June 2023. Accrued and unpaid interest is to be paid when principal payments are due. The Company is subject to certain customary negative covenants under the loan.
During May and June 2020, the Company’s subsidiary in Colombia borrowed the USD equivalent of approximately $3,325 under two variable rate loans. Aggregate principal payments are due monthly beginning in December 2020 through May 2023. Accrued and unpaid interest is to be paid when principal payments are due. The variable interest rates on the loans ranged from approximately 7.5% to 8.5% as of June 30, 2020. The Company is subject to certain customary negative covenants under the loans.
Interest Rate Swap Agreements
Effective March 31, 2020, the Company amended and extended its three existing interest rate swap agreements and entered into a fourth interest rate swap agreement, all of which are used to hedge a portion of the interest rate risk associated with the variable interest rates on the Company’s term loan debt and qualify for cash flow hedge accounting. Below is a summary of the Company’s interest rate swap agreements designated as cash flow hedges as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Notional
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
Amount
|
|
|
Effective Date
|
|
Pay Rate
|
|
|
Receive Rate
|
|
Expiration Date
|
|
2020 (1)
|
|
$
|
137,500
|
|
|
December 31, 2018
|
|
2.12%
|
|
|
1-Month LIBOR
|
|
December 31, 2024
|
|
$
|
10,934
|
|
$
|
175,000
|
|
|
December 31, 2018
|
|
2.12%
|
|
|
1-Month LIBOR
|
|
December 31, 2024
|
|
|
13,984
|
|
$
|
137,500
|
|
|
December 31, 2018
|
|
2.19%
|
|
|
1-Month LIBOR
|
|
December 31, 2024
|
|
|
11,398
|
|
$
|
150,000
|
|
|
March 31, 2020
|
|
0.57%
|
|
|
1-Month LIBOR
|
|
March 31, 2022
|
|
|
1,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,336
|
|
16
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
(1)
|
Approximately $9,758 of the total is included in accounts payable and accrued expenses and $27,578 is included in other long-term liabilities on the condensed consolidated balance sheet as of June 30, 2020.
|
Upon amending the interest rate swap agreements effective March 31,2020, the Company determined that the interest payments hedged with the agreements are still probable to occur, therefore the loss that accumulated on the swaps prior to the amendments of $29,359 is being amortized on a straight-line basis to interest expense through December 31, 2022, the original maturity dates of the swaps. Approximately $2,669 was recorded in amortization of accumulated losses for amended swaps in the condensed consolidated income statement for the three and six months ended June 30, 2020.
The fair values of the amended interest rate swaps and the new interest rate swap are recorded on the Company’s condensed consolidated balance sheet as an asset or liability with the related gains or losses reported as a component of 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, which fall in Level 2 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35, as provided by counterparties to the interest rate swap agreements and the fixed rates that the Company is obligated to pay under the agreements.
Fair Value of Long-Term Debt
The Company estimates the fair value of its long-term debt using the market approach, which utilizes quoted market prices that fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by ASC 820, Fair Value Measurement (“ASC Topic 820”). The carrying value of the Company’s long-term debt was $2,152,965 and $1,801,327 as of June 30, 2020 and December 31, 2019, respectively, excluding unamortized debt discounts and debt issue costs. The fair value of the Company’s long-term debt was $1,984,469 and $1,826,503 as of June 30, 2020 and December 31, 2019, respectively.
17
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a summary of changes in stockholders’ equity attributable to Cinemark Holdings, Inc., noncontrolling interests and total equity for the three and six months ended June 30, 2020 and 2019:
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional Paid-In-Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Loss
|
|
Total Cinemark Holdings, Inc. Stockholders’ Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
|
Balance at January 1, 2020
|
|
$
|
122
|
|
$
|
(81,567
|
)
|
$
|
1,170,039
|
|
$
|
687,332
|
|
$
|
(340,112
|
)
|
$
|
1,435,814
|
|
$
|
12,508
|
|
$
|
1,448,322
|
|
Issuance of share based awards and share based awards compensation expense
|
|
|
—
|
|
|
—
|
|
|
4,111
|
|
|
—
|
|
|
—
|
|
|
4,111
|
|
|
—
|
|
|
4,111
|
|
Stock withholdings related to share based awards that vested during the three months ended March 31, 2020
|
|
|
—
|
|
|
(2,691
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,691
|
)
|
|
—
|
|
|
(2,691
|
)
|
Dividends paid to stockholders, $0.36 per common share (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(42,311
|
)
|
|
—
|
|
|
(42,311
|
)
|
|
—
|
|
|
(42,311
|
)
|
Dividends paid to noncontrolling interests
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(392
|
)
|
|
(392
|
)
|
Dividends accrued on unvested restricted stock unit awards (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(256
|
)
|
|
—
|
|
|
(256
|
)
|
|
—
|
|
|
(256
|
)
|
Net income (loss)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(59,591
|
)
|
|
—
|
|
|
(59,591
|
)
|
|
169
|
|
|
(59,422
|
)
|
Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes, net of settlements
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,171
|
)
|
|
(24,171
|
)
|
|
—
|
|
|
(24,171
|
)
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(57,625
|
)
|
|
(57,625
|
)
|
|
—
|
|
|
(57,625
|
)
|
Balance at March 31, 2020
|
|
|
122
|
|
|
(84,258
|
)
|
|
1,174,150
|
|
|
585,174
|
|
|
(421,908
|
)
|
|
1,253,280
|
|
|
12,285
|
|
|
1,265,565
|
|
Issuance of share based awards and share based awards compensation expense
|
|
|
—
|
|
|
—
|
|
|
4,321
|
|
|
—
|
|
|
—
|
|
|
4,321
|
|
|
—
|
|
|
4,321
|
|
Stock withholdings related to share based awards that vested during the three months ended June 30, 2020
|
|
|
—
|
|
|
(107
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(107
|
)
|
|
—
|
|
|
(107
|
)
|
Net loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(170,389
|
)
|
|
—
|
|
|
(170,389
|
)
|
|
(427
|
)
|
|
(170,816
|
)
|
Unrealized gain due to fair value adjustments on interest rate swap agreements, net of taxes, net of settlements
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
849
|
|
|
849
|
|
|
—
|
|
|
849
|
|
Amortization of accumulated losses for amended swap agreements
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,669
|
|
|
2,669
|
|
|
—
|
|
|
2,669
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,702
|
)
|
|
(3,702
|
)
|
|
—
|
|
|
(3,702
|
)
|
Balance at June 30, 2020
|
|
$
|
122
|
|
$
|
(84,365
|
)
|
$
|
1,178,471
|
|
$
|
414,785
|
|
$
|
(422,092
|
)
|
$
|
1,086,921
|
|
$
|
11,859
|
|
$
|
1,098,780
|
|
18
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 Loss
|
|
Total Cinemark Holdings, Inc. Stockholders’ Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
|
Balance at January 1, 2019
|
|
$
|
121
|
|
$
|
(79,259
|
)
|
$
|
1,155,424
|
|
$
|
686,459
|
|
$
|
(319,007
|
)
|
$
|
1,443,738
|
|
$
|
12,379
|
|
$
|
1,456,117
|
|
Cumulative effect of change in accounting principle, net of taxes of $6,054
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,985
|
|
|
—
|
|
|
16,985
|
|
|
—
|
|
|
16,985
|
|
Issuance of share based awards and share based awards compensation expense
|
|
|
—
|
|
|
—
|
|
|
2,970
|
|
|
|
|
|
—
|
|
|
2,970
|
|
|
—
|
|
|
2,970
|
|
Stock withholdings related to share based awards that vested during the three months ended March 31, 2019
|
|
|
—
|
|
|
(1,947
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,947
|
)
|
|
—
|
|
|
(1,947
|
)
|
Dividends paid to stockholders, $0.34 per common share (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39,797
|
)
|
|
—
|
|
|
(39,797
|
)
|
|
—
|
|
|
(39,797
|
)
|
Dividends paid to noncontrolling interests
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,000
|
)
|
|
(1,000
|
)
|
Dividends accrued on unvested restricted stock unit awards (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(108
|
)
|
|
—
|
|
|
(108
|
)
|
|
—
|
|
|
(108
|
)
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32,728
|
|
|
—
|
|
|
32,728
|
|
|
465
|
|
|
33,193
|
|
Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes, net of settlements
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,311
|
)
|
|
(3,311
|
)
|
|
—
|
|
|
(3,311
|
)
|
Other comprehensive loss in equity method investees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
|
(71
|
)
|
|
—
|
|
|
(71
|
)
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
755
|
|
|
755
|
|
|
—
|
|
|
755
|
|
Balance at March 31, 2019
|
|
|
121
|
|
|
(81,206
|
)
|
|
1,158,394
|
|
|
696,267
|
|
|
(321,634
|
)
|
|
1,451,942
|
|
|
11,844
|
|
|
1,463,786
|
|
Issuance of share based awards and share based awards compensation expense
|
|
|
1
|
|
|
—
|
|
|
3,676
|
|
|
—
|
|
|
—
|
|
|
3,677
|
|
|
—
|
|
|
3,677
|
|
Stock withholdings related to share based awards that vested during the three months ended June 30, 2019
|
|
|
—
|
|
|
(300
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(300
|
)
|
|
—
|
|
|
(300
|
)
|
Dividends paid to stockholders, $0.34 per common share (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(39,823
|
)
|
|
—
|
|
|
(39,823
|
)
|
|
—
|
|
|
(39,823
|
)
|
Dividends paid to noncontrolling interests
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(294
|
)
|
|
(294
|
)
|
Dividends accrued on unvested restricted stock unit awards (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(189
|
)
|
|
—
|
|
|
(189
|
)
|
|
—
|
|
|
(189
|
)
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,971
|
|
|
—
|
|
|
100,971
|
|
|
890
|
|
|
101,861
|
|
Other comprehensive loss in equity method investees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes, net of settlements
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,902
|
)
|
|
(5,902
|
)
|
|
—
|
|
|
(5,902
|
)
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,925
|
|
|
4,925
|
|
|
—
|
|
|
4,925
|
|
Balance at June 30, 2019
|
|
$
|
122
|
|
$
|
(81,506
|
)
|
$
|
1,162,070
|
|
$
|
757,226
|
|
$
|
(322,633
|
)
|
$
|
1,515,279
|
|
$
|
12,440
|
|
$
|
1,527,719
|
|
|
(1)
|
Below is a summary of dividends paid to stockholders as well as dividends accrued on unvested restricted stock units during the six months ended June 30, 2020 and 2019:
|
|
|
|
|
Amount per Share
|
|
|
|
|
|
Declaration Date
|
Record Date
|
Payable Date
|
|
of Common Stock
|
|
|
Total
|
|
2/21/2020
|
3/6/2020
|
3/20/2020
|
|
$
|
0.36
|
|
|
$
|
42,567
|
|
Six Months Ended June 30, 2020
|
|
$
|
0.36
|
|
|
$
|
42,567
|
|
|
|
|
|
|
|
|
|
|
|
|
2/22/2019
|
3/8/2019
|
3/22/2019
|
|
$
|
0.34
|
|
|
$
|
39,905
|
|
5/23/2019
|
6/8/2019
|
6/24/2019
|
|
|
0.34
|
|
|
|
40,012
|
|
Six Months Ended June 30, 2019
|
|
$
|
0.68
|
|
|
$
|
79,917
|
|
19
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a summary of activity with NCM included in the Company’s condensed consolidated financial statements:
|
|
Investment
in NCM
|
|
NCM Screen Advertising Advances
|
|
Distributions
from NCM
|
|
Equity in
Earnings
|
|
Other
Revenue
|
|
Interest Expense - NCM
|
|
Cash Received
|
|
Balance as of January 1, 2020
|
|
$
|
265,792
|
|
$
|
(348,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of common units due to annual common unit adjustment ("CUA")
|
|
|
3,620
|
|
|
(3,620
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Screen rental revenues earned under ESA (1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,464
|
)
|
|
—
|
|
|
3,464
|
|
Interest accrued related to significant financing component
|
|
|
—
|
|
|
(11,825
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,825
|
|
|
—
|
|
Receipt of excess cash distributions
|
|
|
(12,022
|
)
|
|
—
|
|
|
(5,914
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,936
|
|
Equity in earnings
|
|
|
1,316
|
|
|
—
|
|
|
—
|
|
|
(1,316
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of screen advertising advances
|
|
|
—
|
|
|
15,612
|
|
|
—
|
|
|
—
|
|
|
(15,612
|
)
|
|
—
|
|
|
—
|
|
Balance as of and for the six months ended June 30, 2020
|
|
$
|
258,706
|
|
$
|
(348,187
|
)
|
$
|
(5,914
|
)
|
$
|
(1,316
|
)
|
$
|
(19,076
|
)
|
$
|
11,825
|
|
$
|
21,400
|
|
(1)
|
Amounts include the per patron and per digital screen theatre access fees due to the Company, net of amounts due to NCM for on-screen advertising time provided to the Company’s beverage concessionaire of approximately $2,135.
|
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 7 to the Company’s financial statements as included in its 2019 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 2041. 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.
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. As discussed in Note 7 to the Company’s financial statements as included in its 2019 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 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.
20
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
During March 2020, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, on June 30, 2020, the Company received an additional 1,112,368 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 NCM screen advertising advances of approximately $3,620. 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.
As of June 30, 2020, the Company owned a total of 40,850,068 common units of NCM, representing an ownership interest of approximately 25%. Each of the Company’s common units in NCM is convertible into one share of NCM, Inc. common stock. As of June 30, 2020, the estimated fair value of the Company’s investment in NCM was approximately $121,325 based on NCM, Inc.’s stock price as of June 30, 2020 of $2.97 per share (Level 1 input as defined in FASB ASC Topic 820), which was below the Company’s carrying value of $258,706. The market value of NCM, Inc.’s stock price may vary due to the performance of the business, industry trends, general and economic conditions and other factors, including those resulting from the impact of COVID-19 (see Note 2). The Company does not believe that the decline in NCM, Inc.’s stock price is other than temporary as the Company and other industry participants, who are also members of the NCM network, are planning to reopen theatres over the next few months, and the Company expects industry attendance to recover gradually over time. Therefore, no impairment of the Company’s investment in NCM was recorded during the six months ended June 30, 2020.
Exhibitor Services Agreement
As discussed above, the Company’s domestic theatres are part of the in-theatre digital network operated by NCM under the ESA. NCM provides advertising to the Company’s theatres through its branded “Noovie” pre-show entertainment program and also handles lobby promotions and displays for our theatres. The Company receives a monthly theatre access fee for participation in the NCM network and also earns screen advertising revenue on a per patron basis. Prior to September 17, 2019, the ESA was accounted for under ASC Topic 606, Revenue from Contracts with Customers. Effective September 17, 2019, the Company signed an amendment to the ESA, under which the Company will provide incremental advertising time to NCM and has extended the term through February 2041. Subsequent to the amendment, the ESA is accounted for as a lease under ASC Topic 842. The Company leases nonconsecutive periods of use of its domestic theatre screens to NCM for purposes of showing third party advertising content. The lease requires variable lease payments based on the number of patrons attending the showtimes during which such advertising is shown. The screen advertising revenues earned under the ESA, both before and after the amendment, are reflected in other revenue on the condensed consolidated income statement.
The recognition of revenue related to the NCM screen advertising advances will be recorded on a straight-line basis through February 2041.
|
|
Twelve Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
Remaining Maturity
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
NCM screen advertising advances
|
|
$
|
7,997
|
|
|
$
|
8,549
|
|
|
$
|
9,141
|
|
|
$
|
9,774
|
|
|
$
|
10,453
|
|
|
$
|
302,273
|
|
|
$
|
348,187
|
|
Significant Financing Component
Prior to the September 17, 2019 amendment of the ESA, the Company applied a significant financing component, as required by ASC Topic 606, due to the significant length of time between receiving the NCM screen advertising advances (the $174,000 received at the NCMI IPO and the periodic common unit adjustments) and completion of the 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 apply the significant financing component guidance from ASC Topic 606 by analogy as the economic substance of the agreement represents a financing arrangement. As a result of the significant financing component, the Company recognized incremental screen rental revenue and an offsetting interest expense of $15,612 and $11,825, respectively, during the six months ended June 30, 2020. The interest expense was calculated using the Company’s incremental borrowing rates at the time when the cash and each tranche of common units were received from NCM, which ranged from 4.4% to 8.3%.
21
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NCM Financial Information
Below is summary financial information for NCM for the periods indicated:
|
|
Three Months Ended
|
|
|
Three Months ended
|
|
|
Six Months ended
|
|
|
Six Months ended
|
|
|
|
June 25, 2020
|
|
|
June 27, 2019
|
|
|
June 25, 2020
|
|
|
June 27, 2019
|
|
Gross revenues
|
|
$
|
4,000
|
|
|
$
|
110,200
|
|
|
$
|
68,700
|
|
|
$
|
187,100
|
|
Operating income (loss)
|
|
$
|
(23,800
|
)
|
|
$
|
37,700
|
|
|
$
|
(18,900
|
)
|
|
$
|
48,600
|
|
Net income (loss)
|
|
$
|
(37,800
|
)
|
|
$
|
23,500
|
|
|
$
|
(46,400
|
)
|
|
$
|
20,600
|
|
|
|
As of
|
|
|
As of
|
|
|
|
June 25, 2020
|
|
|
December 26, 2019
|
|
Current assets
|
|
$
|
197,700
|
|
|
$
|
185,400
|
|
Noncurrent assets
|
|
$
|
700,900
|
|
|
$
|
706,600
|
|
Current liabilities
|
|
$
|
46,700
|
|
|
$
|
125,500
|
|
Noncurrent liabilities
|
|
$
|
1,074,600
|
|
|
$
|
947,800
|
|
Members deficit
|
|
$
|
(222,700
|
)
|
|
$
|
(181,300
|
)
|
Below is a summary of activity for each of the Company’s other investments for the six months ended June 30, 2020:
|
|
DCIP
|
|
AC JV,
LLC
|
|
DCDC
|
|
FE Concepts
|
|
Other
|
|
Total
|
|
Balance at January 1, 2020
|
|
$
|
124,696
|
|
$
|
5,022
|
|
$
|
3,169
|
|
$
|
19,519
|
|
$
|
2,879
|
|
$
|
155,285
|
|
Cash distributions received
|
|
|
(10,383
|
)
|
|
—
|
|
|
(878
|
)
|
|
—
|
|
|
—
|
|
|
(11,261
|
)
|
Equity in income (loss)
|
|
|
(11,569
|
)
|
|
43
|
|
|
(705
|
)
|
|
(719
|
)
|
|
—
|
|
|
(12,950
|
)
|
Other
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
56
|
|
Balance at June 30, 2020
|
|
$
|
102,794
|
|
$
|
5,065
|
|
$
|
1,586
|
|
$
|
18,800
|
|
$
|
2,885
|
|
$
|
131,130
|
|
Digital Cinema Implementation Partners LLC (“DCIP”)
On February 12, 2007, the Company, AMC and Regal (the “Exhibitors”) entered into a joint venture known as DCIP to facilitate the implementation of digital cinema in the Company’s theatres and to establish agreements with major motion picture studios for the financing of digital cinema. On March 10, 2010, DCIP and its subsidiaries completed an initial financing transaction to enable the purchase, deployment and leasing of digital projection systems to the Exhibitors under equipment lease and installation agreements. On March 31, 2011, DCIP obtained incremental financing necessary to complete the deployment of digital projection systems. DCIP also entered into long-term Digital Cinema Deployment Agreements (“DCDAs”) with 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 recoupment occurs when revenues attributable to the digital projection systems exceed the financing, deployment, administration and other costs associated with the purchase of the digital projection systems. DCIP expects cost recoupment to occur during 2021. The timing of cost recoupment is dependent on VPF payments from studios. Pursuant to the operating agreement between the Exhibitors and DCIP, DCIP began to distribute excess cash to the Exhibitors upon the payoff of its outstanding debt, which occurred during the year ended December 31, 2019.
As of June 30, 2020, the Company had a 33% voting interest in DCIP and a 24.3% economic interest in DCIP. The Company accounts for its investment in DCIP and its subsidiaries under the equity method of accounting.
22
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is summary financial information for DCIP for the periods indicated:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Gross revenues
|
|
$
|
23
|
|
|
$
|
48,007
|
|
|
$
|
32,533
|
|
|
$
|
85,671
|
|
Operating income (loss)
|
|
$
|
(37,305
|
)
|
|
$
|
30,573
|
|
|
$
|
(42,544
|
)
|
|
$
|
50,781
|
|
Net income (loss)
|
|
$
|
(37,966
|
)
|
|
$
|
28,475
|
|
|
$
|
(49,106
|
)
|
|
$
|
46,960
|
|
|
|
As of
|
|
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Current assets
|
|
$
|
22,163
|
|
|
$
|
51,382
|
|
Noncurrent assets
|
|
$
|
496,545
|
|
|
$
|
581,547
|
|
Current liabilities
|
|
$
|
56,931
|
|
|
$
|
70,515
|
|
Noncurrent liabilities
|
|
$
|
733
|
|
|
$
|
190
|
|
Members' equity
|
|
$
|
461,044
|
|
|
$
|
562,224
|
|
As of June 30, 2020, the Company had 3,812 digital projection systems being leased under the master equipment lease agreement with Kasima LLC, which is an indirect subsidiary of DCIP and a related party to the Company. The Company had the following transactions with DCIP, reflected in utilities and other costs on the condensed consolidated statements of income, during the three and six months ended June 30, 2020 and 2019:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Equipment lease payments (1)
|
|
$
|
—
|
|
|
$
|
1,131
|
|
|
$
|
1,038
|
|
|
$
|
2,252
|
|
Warranty reimbursements from DCIP
|
|
$
|
—
|
|
|
$
|
(2,951
|
)
|
|
$
|
(3,123
|
)
|
|
$
|
(5,889
|
)
|
Management service fees
|
|
$
|
—
|
|
|
$
|
152
|
|
|
$
|
84
|
|
|
$
|
310
|
|
|
(1)
|
The Company negotiated an abatement of lease payments during the temporary closure of its theatres as a result of the COVID-19 pandemic. The Company did not remeasure its lease liabilities and lease right-of-use assets as a result of these negotiations in accordance with FASB guidance. See further discussion at Note 4.
|
|
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 $2,258 and $8,475 for the six months ended June 30, 2020 and 2019, respectively, which are included in film rentals and advertising costs on the condensed consolidated statements of income. The Company accounts for its investment in AC under the equity method of accounting.
Digital Cinema Distribution Coalition
Digital Cinema Distribution Coalition (“DCDC”) is a joint venture among the Company, Universal, Warner Bros., AMC and Regal. DCDC operates a satellite distribution network that distributes all digital content to U.S. theatres via satellite. The Company has an approximate 14.6% ownership in DCDC. The Company paid approximately $208 and $508 to DCDC during the six months ended June 30, 2020 and 2019, respectively, related to content delivery services provided by DCDC. These fees are included in film rentals and advertising costs on the condensed consolidated statements of income. The Company accounts for its investment in DCDC under the equity method of accounting.
FE Concepts, LLC
During April 2018, the Company, through its wholly-owned indirect subsidiary CNMK Texas Properties, LLC (“CNMK”), formed a joint venture, FE Concepts, LLC (“FE Concepts”) with AWSR Investments, LLC (“AWSR”), an entity owned by Lee Roy Mitchell and Tandy Mitchell. FE Concepts operates a family entertainment center that offers bowling, gaming, movies and other amenities that opened during December 2019. The Company and AWSR each invested approximately $20,000 and each have a 50% voting interest in FE Concepts. The Company accounts for its investment in FE Concepts under the equity method of accounting. The Company has a theatre services agreement with FE Concepts under which it provides film booking and equipment monitoring
23
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
services. The Company recorded $10 of theatre services revenue under the agreement during the three and six months ended June 30, 2020.
Additional Considerations
Each of the investments above have been temporarily impacted by the COVID-19 pandemic (see Note 2) due to the temporary closure of theatres across the U.S. The Company does not believe that any resulting decline in value of the underlying investments is other than temporary as the Company and other industry participants, who also have equity ownership interests in certain of the above investments, are planning to reopen theatres during the next few months, and the Company expects industry attendance to recover gradually over time.
11.
|
Treasury Stock and Share Based Awards
|
Treasury Stock — Treasury stock represents shares of common stock repurchased or withheld by the Company and not yet retired. The Company has applied the cost method in recording its treasury shares. Below is a summary of the Company’s treasury stock activity for the six months ended June 30, 2020:
|
|
Number of
|
|
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
|
|
Shares
|
|
|
Cost
|
|
Balance at January 1, 2020
|
|
|
4,711,859
|
|
|
$
|
81,567
|
|
Restricted stock withholdings (1)
|
|
|
94,882
|
|
|
|
2,798
|
|
Restricted stock forfeitures
|
|
|
27,723
|
|
|
|
—
|
|
Balance at June 30, 2020
|
|
|
4,834,464
|
|
|
$
|
84,365
|
|
(1)
|
The Company withheld restricted shares as a result of the election by certain employees to satisfy their tax liabilities upon vesting in restricted stock and restricted stock units. The Company determined the number of shares to be withheld based upon market values ranging from $8.03 to $32.12 per share.
|
As of June 30, 2020, the Company had no plans to retire any shares of treasury stock.
Restricted Stock – During the six months ended June 30, 2020, the Company granted 535,231 shares of restricted stock to 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 $8.39 to $32.12 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 six months ended June 30, 2020:
|
|
Shares of
|
|
|
Weighted
Average
|
|
|
|
Restricted
|
|
|
Grant Date
|
|
|
|
Stock
|
|
|
Fair Value
|
|
Outstanding at January 1, 2020
|
|
|
783,823
|
|
|
$
|
37.53
|
|
Granted
|
|
|
535,231
|
|
|
$
|
25.22
|
|
Vested
|
|
|
(307,107
|
)
|
|
$
|
35.58
|
|
Forfeited
|
|
|
(27,723
|
)
|
|
$
|
36.11
|
|
Outstanding at June 30, 2020
|
|
|
984,224
|
|
|
$
|
31.49
|
|
Unvested restricted stock at June 30, 2020
|
|
|
984,224
|
|
|
$
|
31.49
|
|
24
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Compensation expense recognized during the period
|
|
$
|
5,403
|
|
|
$
|
4,869
|
|
Fair value of restricted shares that vested during the period
|
|
$
|
8,700
|
|
|
$
|
7,630
|
|
Income tax benefit recognized upon vesting of restricted stock awards
|
|
$
|
2,620
|
|
|
$
|
1,473
|
|
As of June 30, 2020, the estimated remaining unrecognized compensation expense related to unvested restricted stock awards was $20,390 and the weighted average period over which this remaining compensation expense will be recognized is approximately three years.
Impact of 2020 Restructuring Plan - During June 2020, as part of the Company’s employee-related restructuring actions discussed in Note 2, the vesting period for certain share based awards will be accelerated on a pro-rata basis based upon the grant dates and each employee’s separation date. The Company considers the accelerated vest of these awards to be a modification under ASC Topic 718 Stock Compensation. Based on the terms of the severance agreements, the Company estimated the number of awards expected to vest at each employee’s expected separation date and revalued such awards based on the modification date, or the date on which employees were notified of the 2020 Restructuring Plan. The modification date fair value per share was $15.95. The Company recorded incremental compensation expense of approximately $521 related to these modifications, which is reflected in restructuring costs on the Company’s condensed consolidated income statement.
Restricted Stock Units – During the six months ended June 30, 2020, the Company granted restricted stock units representing 436,681 hypothetical shares of common stock to employees. The restricted stock units vest based on a combination of financial performance factors and continued service. The financial performance factors are based on an implied equity value concept that determines an internal rate of return (“IRR”) during the two fiscal year periods ending December 31, 2021 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 2020 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 six months ended June 30, 2020 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%
|
|
|
190,707
|
|
|
$
|
6,125
|
|
at IRR of at least 8%
|
|
|
286,060
|
|
|
$
|
9,188
|
|
at IRR of at least 14%
|
|
|
436,681
|
|
|
$
|
14,026
|
|
25
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Due to the fact that the IRR for the two-year performance period could not be determined at the time of the 2020 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 $32.12 per share. The Company assumed a forfeiture rate of 5% for the restricted stock unit awards. If during the service period, additional information becomes available to lead the Company to believe a different IRR level will be achieved for the two-year performance period, the Company will reassess the number of units that are expected to vest for the grant and adjust its compensation expense accordingly on a prospective basis over the remaining service period.
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Number of restricted stock unit awards that vested during the period
|
|
|
117,500
|
|
|
|
88,074
|
|
Fair value of restricted stock unit awards that vested during the period
|
|
$
|
3,634
|
|
|
$
|
3,550
|
|
Accumulated dividends paid upon vesting of restricted stock unit awards
|
|
$
|
563
|
|
|
$
|
375
|
|
Compensation expense recognized during the period
|
|
$
|
3,029
|
|
|
$
|
1,777
|
|
Income tax benefit recognized upon vesting of restricted stock unit awards
|
|
$
|
526
|
|
|
$
|
170
|
|
As of June 30, 2020, the estimated remaining unrecognized compensation expense related to the outstanding restricted stock unit awards was $15,150. The weighted average period over which this remaining compensation expense will be recognized is approximately three years. As of June 30, 2020, the Company had restricted stock units outstanding that represented a total of 990,121 hypothetical shares of common stock, net of forfeitures, assuming an IRR of 9.3% was achieved for the 2017 grants, an IRR of 8.6% was achieved for the 2018 grants and the maximum IRR level is achieved for all other grants outstanding.
12.
|
Goodwill and Other Intangible Assets
|
The Company’s goodwill was as follows:
|
|
U.S.
Operating
Segment
|
|
|
International
Operating
Segment
|
|
|
Total
|
|
Balance at January 1, 2020 (1)
|
|
$
|
1,182,853
|
|
|
$
|
100,518
|
|
|
$
|
1,283,371
|
|
Foreign currency translation adjustments
|
|
|
—
|
|
|
|
(16,434
|
)
|
|
|
(16,434
|
)
|
Balance at June 30, 2020 (1)
|
|
$
|
1,182,853
|
|
|
$
|
84,084
|
|
|
$
|
1,266,937
|
|
|
(1)
|
Balances are presented net of accumulated impairment losses of $214,031 for the U.S. operating segment and $27,622 for the international operating segment.
|
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 twenty 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). Under its quantitative goodwill impairment analysis, the Company estimates the fair value of each reporting unit and compares it with its carrying value. Fair value is determined using the market approach, which is the most common valuation approach for the Company’s industry and based on a multiple of cash flows for each reporting unit.
Due to the temporary closure of the Company’s domestic theatres effective March 17, 2020 and international theatres effective March 18, 2020 as a result of the COVID-19 pandemic (see Note 2), the Company performed a quantitative goodwill impairment evaluation for all reporting units during the three months ended March 31, 2020 using the market approach, and an estimated multiple of eight times cash flows. During the three months ended March 31, 2020, the Company also performed its quantitative goodwill impairment analysis using the income approach to further validate the results of the assessment under the market approach. Significant
26
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
judgment, including management’s estimate of the impact of temporary theatre closures and other considerations as a result of COVID-19, is involved in estimating future cash flows and fair value. The Company’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on projected operating performance of each reporting unit, market transactions and industry trading multiples.
The Company performed a qualitative assessment of goodwill for each reporting unit as of June 30, 2020, considering the anticipated timing of theatre reopenings on its cash flow estimates, as well as market transactions and industry trading multiples. Based on its qualitative assessment, no goodwill impairment was recorded during the three months ended June 30, 2020.
Intangible assets consisted of the following:
|
|
Balance at
January 1, 2020
|
|
Amortization
|
|
Other (1)
|
|
Balance at June 30, 2020
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
85,007
|
|
$
|
—
|
|
$
|
(1,672
|
)
|
$
|
83,335
|
|
Accumulated amortization
|
|
|
(63,924
|
)
|
|
(2,431
|
)
|
|
—
|
|
|
(66,355
|
)
|
Total net intangible assets with finite lives
|
|
$
|
21,083
|
|
$
|
(2,431
|
)
|
$
|
(1,672
|
)
|
$
|
16,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename and other
|
|
|
300,686
|
|
|
—
|
|
|
(551
|
)
|
|
300,135
|
|
Total intangible assets — net
|
|
$
|
321,769
|
|
$
|
(2,431
|
)
|
$
|
(2,223
|
)
|
$
|
317,115
|
|
|
(1)
|
Amount primarily represents foreign currency translation adjustments.
|
Due to the temporary closure of the Company’s theatres effective March 18, 2020 as a result of the COVID-19 pandemic (see Note 2), the Company performed a quantitative impairment evaluation for all definite and indefinite-lived tradename assets during the three months ended March 31, 2020. Under the quantitative analysis, the Company compared the carrying values of tradename assets to their estimated fair values. Fair values were estimated by applying an estimated market royalty rate that could be charged for the use of the tradenames to forecasted future revenues, with an adjustment for the present value of such royalties. Significant judgment, including management’s estimate of the impact of temporary theatre closures and other considerations as a result of COVID-19, was involved in estimating market royalty rates and long-term revenue forecasts. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, were based on projected revenue performance and expected industry trends, considering the temporary closure of its theatres.
The Company performed a qualitative impairment analysis on its definite and indefinite-lived intangible assets as of June 30, 2020, considering the anticipated timing of theatre reopenings on its revenue forecasts. As a result of the qualitative assessment, no impairment of tradename assets was recorded during the three months ended June 30, 2020.
The estimated aggregate future amortization expense for intangible assets is as follows:
For the six months ended December 31, 2020
|
|
$
|
2,457
|
|
For the twelve months ended December 31, 2021
|
|
|
2,828
|
|
For the twelve months ended December 31, 2022
|
|
|
2,674
|
|
For the twelve months ended December 31, 2023
|
|
|
2,576
|
|
For the twelve months ended December 31, 2024
|
|
|
2,576
|
|
Thereafter
|
|
|
3,869
|
|
Total
|
|
$
|
16,980
|
|
13.
|
Impairment of Long-Lived Assets
|
Due to the temporary closure of the Company’s theatres effective March 18, 2020 as a result of the COVID-19 pandemic (see Note 2), the Company performed a long-lived asset impairment evaluation for all theatres during the three months ended March 31, 2020. The impairment evaluation was based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. Significant judgment, including management’s estimate of the impact of temporary theatre closures and other considerations as a result of COVID-19, was involved in estimating cash flows and fair value. Fair value is determined based on a multiple of cash flows, which was six times for the evaluations performed. Management’s estimates, which fall under Level 3 of the
27
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
U.S. GAAP fair value hierarchy, as defined by FASB ASC Topic 820-10-35, are based on projected operating performance, market transactions and industry trading multiples.
The Company performed a qualitative impairment analysis on its long-lived assets as of June 30, 2020, considering the timing of expected theatre reopenings on its estimated cash flows as well as market transactions and industry trading multiples. As a result of the qualitative assessment, no impairment of long-lived assets was recorded during the three months ended June 30, 2020.
Below is a summary of impairment charges for the periods presented:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
U.S. Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatre properties
|
|
$
|
—
|
|
|
$
|
1,044
|
|
|
$
|
3,643
|
|
|
$
|
2,252
|
|
Theatre operating lease right-of-use assets
|
|
|
—
|
|
|
|
8,047
|
|
|
|
5,952
|
|
|
|
8,047
|
|
U.S. total
|
|
|
—
|
|
|
|
9,091
|
|
|
|
9,595
|
|
|
|
10,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatre properties
|
|
|
—
|
|
|
|
1,775
|
|
|
|
4,484
|
|
|
|
6,151
|
|
Theatre operating lease right-of-use assets
|
|
|
—
|
|
|
|
1,628
|
|
|
|
2,540
|
|
|
|
1,628
|
|
International total
|
|
|
—
|
|
|
|
3,403
|
|
|
|
7,024
|
|
|
|
7,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impairment
|
|
$
|
—
|
|
|
$
|
12,494
|
|
|
$
|
16,619
|
|
|
$
|
18,078
|
|
14.
|
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 June 30, 2020 and December 31, 2019:
|
|
|
|
Carrying
|
|
|
Fair Value Hierarchy
|
|
Description
|
|
As of,
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Interest rate swap liabilities (1)
|
|
June 30, 2020
|
|
$
|
37,336
|
|
|
$
|
—
|
|
|
$
|
37,336
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liabilities (1)
|
|
December 31, 2019
|
|
$
|
15,995
|
|
|
$
|
—
|
|
|
$
|
15,995
|
|
|
$
|
—
|
|
|
(1)
|
See further discussion of interest rate swaps at Note 7.
|
The Company uses the market approach for fair value measurements on a nonrecurring basis in the impairment evaluations of its goodwill, intangible assets and long-lived assets (see Note 12 and Note 13). See additional explanation of fair value measurement techniques used for long-lived assets, goodwill and intangible assets in “Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed February 21, 2020. There were no changes in valuation techniques. The Company elected to perform its goodwill impairment evaluation using both the market approach and the income approach for the six months ended June 30, 2020. There were no transfers in to or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2020.
15.
|
Foreign Currency Translation
|
The accumulated other comprehensive loss account in stockholders’ equity of $422,092 and $340,112 as of June 30, 2020 and December 31, 2019, respectively, primarily includes cumulative foreign currency net losses of $389,380 and $328,053, respectively,
28
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
from translating the financial statements of the Company’s international subsidiaries and the cumulative changes in fair value of the Company’s interest rate swap agreements that are designated as hedges.
As of June 30, 2020, all foreign countries where the Company has operations, other than Argentina, are non-highly inflationary, and the local currency is the same as the functional currency in all of the locations. Thus, any fluctuation in the currency results in a cumulative foreign currency translation adjustment recorded to accumulated other comprehensive loss. 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 June 30, 2020 and 2019 financial statements of the Company’s international subsidiaries:
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss) for
|
|
|
|
Exchange Rate as of
|
|
|
Six Months Ended
|
|
Country
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
June 30, 2020
|
|
June 30, 2019
|
|
Brazil
|
|
|
5.43
|
|
|
|
4.02
|
|
|
$
|
(49,478
|
)
|
$
|
1,664
|
|
Chile
|
|
|
821.91
|
|
|
|
736.86
|
|
|
|
(8,233
|
)
|
|
1,839
|
|
Colombia
|
|
|
3,758.90
|
|
|
|
3,277.14
|
|
|
|
(2,523
|
)
|
|
251
|
|
Peru
|
|
|
3.56
|
|
|
|
3.37
|
|
|
|
(2,480
|
)
|
|
1,389
|
|
All other
|
|
|
|
|
|
|
|
|
|
|
1,387
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(61,327
|
)
|
$
|
5,680
|
|
|
(1)
|
Beginning July 1, 2018, Argentina was deemed highly inflationary. A gain of $633 and a loss of $299 for the six months ended June 30, 2020 and 2019, respectively, is reflected as foreign currency exchange gain (loss) on the Company’s condensed consolidated statement of income as a result of translating Argentina financial results to U.S. dollars.
|
|
16.
|
Supplemental Cash Flow Information
|
The following is provided as supplemental information to the condensed consolidated statements of cash flows:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash paid for interest
|
|
$
|
47,014
|
|
|
$
|
47,015
|
|
Cash paid for income taxes, net of refunds received
|
|
$
|
5,229
|
|
|
$
|
36,831
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Change in accounts payable and accrued expenses for the acquisition of theatre properties and equipment (1)
|
|
$
|
1,043
|
|
|
$
|
(16,118
|
)
|
Interest expense - NCM (see Note 9)
|
|
$
|
(11,825
|
)
|
|
$
|
(9,514
|
)
|
Investment in NCM – receipt of common units (see Note 9)
|
|
$
|
3,620
|
|
|
$
|
1,552
|
|
Dividends accrued on unvested restricted stock unit awards
|
|
$
|
(256
|
)
|
|
$
|
(297
|
)
|
(1)
|
Additions to theatre properties and equipment included in accounts payable as of June 30, 2020 and December 31, 2019 were $16,034 and $14,991, respectively.
|
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.
29
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a breakdown of selected financial information by reportable operating segment:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
8,155
|
|
|
$
|
747,119
|
|
|
$
|
437,457
|
|
|
$
|
1,304,917
|
|
International
|
|
|
819
|
|
|
|
214,830
|
|
|
|
116,992
|
|
|
|
374,737
|
|
Eliminations
|
|
|
—
|
|
|
|
(4,193
|
)
|
|
|
(1,859
|
)
|
|
|
(7,175
|
)
|
Total revenues
|
|
$
|
8,974
|
|
|
$
|
957,756
|
|
|
$
|
552,590
|
|
|
$
|
1,672,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
(96,252
|
)
|
|
$
|
195,298
|
|
|
$
|
(40,180
|
)
|
|
$
|
321,057
|
|
International
|
|
|
(21,366
|
)
|
|
|
49,440
|
|
|
|
(11,227
|
)
|
|
|
75,935
|
|
Total Adjusted EBITDA
|
|
$
|
(117,618
|
)
|
|
$
|
244,738
|
|
|
$
|
(51,407
|
)
|
|
$
|
396,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
11,028
|
|
|
$
|
45,591
|
|
|
$
|
36,701
|
|
|
$
|
97,930
|
|
International
|
|
|
1,788
|
|
|
|
12,009
|
|
|
|
10,258
|
|
|
|
17,239
|
|
Total capital expenditures
|
|
$
|
12,816
|
|
|
$
|
57,600
|
|
|
$
|
46,959
|
|
|
$
|
115,169
|
|
30
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net income (loss)
|
|
$
|
(170,816
|
)
|
|
$
|
101,861
|
|
|
$
|
(230,238
|
)
|
|
$
|
135,054
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(98,145
|
)
|
|
|
38,182
|
|
|
|
(101,253
|
)
|
|
|
50,099
|
|
Interest expense (1)
|
|
|
28,372
|
|
|
|
24,929
|
|
|
|
53,038
|
|
|
|
50,070
|
|
Other (income) expense, net (2)
|
|
|
27,004
|
|
|
|
(6,774
|
)
|
|
|
27,173
|
|
|
|
(15,109
|
)
|
Cash distributions from DCIP (3)
|
|
|
5,222
|
|
|
|
—
|
|
|
|
10,383
|
|
|
|
5,218
|
|
Cash distributions from other equity investees (4)
|
|
|
1,456
|
|
|
|
5,323
|
|
|
|
12,901
|
|
|
|
14,447
|
|
Depreciation and amortization
|
|
|
63,581
|
|
|
|
64,573
|
|
|
|
128,837
|
|
|
|
129,035
|
|
Impairment of long-lived assets
|
|
|
—
|
|
|
|
12,494
|
|
|
|
16,619
|
|
|
|
18,078
|
|
Restructuring costs
|
|
|
19,538
|
|
|
|
—
|
|
|
|
19,538
|
|
|
|
—
|
|
Loss on disposal of assets and other
|
|
|
425
|
|
|
|
1,805
|
|
|
|
2,330
|
|
|
|
5,604
|
|
Non-cash rent expense
|
|
|
1,424
|
|
|
|
(1,331
|
)
|
|
|
833
|
|
|
|
(2,150
|
)
|
Share based awards compensation expense
|
|
|
4,321
|
|
|
|
3,676
|
|
|
|
8,432
|
|
|
|
6,646
|
|
Adjusted EBITDA
|
|
$
|
(117,618
|
)
|
|
$
|
244,738
|
|
|
$
|
(51,407
|
)
|
|
$
|
396,992
|
|
|
(1)
|
Includes amortization of debt issue costs.
|
|
(2)
|
Includes interest income, amortization of accumulated losses for amended swap agreements, foreign currency exchange gain (loss), equity in income of affiliates and interest expense - NCM and excludes distributions from NCM.
|
|
(3)
|
See discussion of cash distributions from DCIP, which were recorded as a reduction of the Company’s investment in DCIP, at Note 10. These distributions are reported entirely within the U.S. operating segment.
|
|
(4)
|
Includes cash distributions received from equity investees, other than those from DCIP noted above, that were recorded as a reduction of the respective investment balances (see Notes 9 and 10). These distributions are reported entirely within the U.S. operating segment.
|
Financial Information About Geographic Areas
Below is a breakdown of selected financial information by geographic area:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Revenues
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
U.S.
|
|
$
|
8,155
|
|
|
$
|
747,119
|
|
|
$
|
437,457
|
|
|
$
|
1,304,917
|
|
Brazil
|
|
|
348
|
|
|
|
89,626
|
|
|
|
53,316
|
|
|
|
160,487
|
|
Other international countries
|
|
|
471
|
|
|
|
125,204
|
|
|
|
63,676
|
|
|
|
214,250
|
|
Eliminations
|
|
|
—
|
|
|
|
(4,193
|
)
|
|
|
(1,859
|
)
|
|
|
(7,175
|
)
|
Total
|
|
$
|
8,974
|
|
|
$
|
957,756
|
|
|
$
|
552,590
|
|
|
$
|
1,672,479
|
|
|
|
As of
|
|
|
As of
|
|
Theatre Properties and Equipment-net
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
U.S.
|
|
$
|
1,367,956
|
|
|
$
|
1,436,275
|
|
Brazil
|
|
|
78,442
|
|
|
|
118,367
|
|
Other international countries
|
|
|
156,323
|
|
|
|
180,605
|
|
Total
|
|
$
|
1,602,721
|
|
|
$
|
1,735,247
|
|
31
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
18.
|
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 $114 and $364 of management fee revenues during the six months ended June 30, 2020 and 2019, respectively. All such amounts are included in the Company’s condensed consolidated financial statements with the intercompany amounts eliminated in consolidation.
The Company has an Aircraft Time Sharing Agreement with Copper Beech Capital, LLC (“Copper Beech”) to use, on occasion, a private aircraft owned by Copper Beech. 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 six months ended June 30, 2020 and 2019, the aggregate amounts paid to Copper Beech for the use of the aircraft was $12 and $67, 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 six months ended June 30, 2020 and 2019, the Company paid total rent of approximately $10,542 and $14,356, respectively, to Syufy. The Company negotiated a deferral of rent payments for April, May and June of 2020 for 4 of the 14 leased theatres to be paid back over the months of July through December of 2020. The Company did not remeasure its lease liabilities and lease right-of-use assets as a result of these negotiations in accordance with FASB guidance. See further discussion at Note 4.
The Company has a 50% voting interest in FE Concepts, a joint venture with AWSR, an entity owned by Lee Roy Mitchell and Tandy Mitchell. FE Concepts operates a family entertainment center that offers bowling, gaming, movies and other amenities that opened during December 2019. See Note 10 for further discussion. The Company has a theatre services agreement with FE Concepts under which the Company receives management fees for providing film booking and equipment monitoring services for the facility. The Company recorded $10 of management fees during the six months ended June 30, 2020.
32
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
19.
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Commitments and Contingencies
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From time to time, the Company is involved in various legal proceedings arising from the ordinary course of its business operations, such as personal injury claims, employment matters, patent claims, landlord-tenant disputes, contractual disputes with landlords over certain termination rights or the right to discontinue rent payments due to the COVID-19 pandemic and other contractual disputes, some of which are covered by insurance. The Company believes its potential liability with respect to proceedings currently pending is not material, individually or in the aggregate, to the Company’s financial position, results of operations and cash flows.
Intertrust Technologies Corporation (“Intertrust”) v. Cinemark Holdings, Inc., Regal, AMC, et al. This case was filed against the Company on August 7, 2019 in the Eastern District of Texas – Marshall Division alleging patent infringement. The Company firmly maintains that the contentions of the Plaintiff are without merit and will vigorously defend itself against the lawsuit. Although the Company does not believe that it has infringed on any of Intertrust’s patents, it cannot predict the outcome of this litigation.
Flagship Theatres of Palm Desert, LLC d/b/a Cinemas Palme D’Or v. Century Theatres, Inc., and Cinemark USA, Inc.; Superior Court of the State of California, County of Los Angeles. 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.
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