UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number |
Exact Name of Registrant as Specified in its Charter, Principal Executive Office Address and Telephone Number |
State of Incorporation |
I.R.S. Employer Identification No. |
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Cinemark Holdings, Inc. ("Holdings") |
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Cinemark USA, Inc. ("CUSA") |
None |
None |
None |
Securities registered pursuant to Section 12(g) of the Act:
Cinemark Holdings, Inc. None
Cinemark USA, Inc. None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Cinemark Holdings, Inc.
Cinemark USA, Inc. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Cinemark Holdings, Inc. Yes ☐
Cinemark USA, Inc.
(Note: As a voluntary filer, Cinemark USA, Inc. is not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Cinemark Holdings, Inc.
Cinemark USA, Inc. Yes ☐
(Note: As a voluntary filer, Cinemark USA, Inc. is not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act. Cinemark USA, Inc. has filed all reports pursuant to Section 13 or 15(d) of the Exchange Act during the preceding 12 months as if it was subject to such filing requirements.)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Cinemark Holdings, Inc.
Cinemark USA, Inc.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Cinemark Holdings, Inc. |
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☒ |
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Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
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Smaller reporting company |
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Emerging growth company |
Cinemark USA, Inc. |
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Large accelerated filer |
☐ |
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Accelerated filer |
☐ |
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☒ |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Cinemark Holdings, Inc. ☐
Cinemark USA, Inc. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Cinemark Holdings, Inc.
Cinemark USA, Inc.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Cinemark Holdings, Inc.
Cinemark USA, Inc.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Cinemark Holdings, Inc. ☐
Cinemark USA, Inc. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Cinemark Holdings, Inc. Yes
Cinemark USA, Inc. Yes
The aggregate market value of the voting and non-voting common equity owned by non-affiliates of Holdings on June 30, 2023, computed by reference to the closing price for Holdings’ common stock on the New York Stock Exchange on such date was approximately $
As of February 9, 2024,
As of February 9, 2024,
This combined Form 10-K is separately filed by Holdings and CUSA. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrant. When this Form 10-K is incorporated by reference into any filings with the SEC made by Holdings or CUSA, as a registrant, the portions of the Form 10-K that relate to the other registrant are not incorporated by reference therein.
OMISSION OF CERTAIN INFORMATION
CUSA meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and has therefore omitted the information otherwise called for by items 10-13 of Form 10-K as allowed under General Instruction I(2)(c).
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Holdings’ definitive proxy statement, in connection with its 2024 annual meeting of stockholders, to be filed within 120 days of December 31, 2023, are incorporated by reference into Part III, Items 10-14, of this annual report on Form 10-K.
Table of Contents
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1 |
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Item 1. |
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2 |
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Item 1A. |
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10 |
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Item 1B. |
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19 |
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Item 1C. |
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19 |
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Item 2. |
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20 |
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Item 3. |
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21 |
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Item 4. |
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21 |
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Item 5. |
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22 |
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Item 6. |
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23 |
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Item 7. |
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Management’s Discussion and Analysis of Financial Condition and Results |
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24 |
Item 7A. |
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43 |
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Item 8. |
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44 |
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Item 9. |
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Changes in and Disagreements with Accountants on Accounting and |
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44 |
Item 9A. |
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44 |
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Item 9B. |
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45 |
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Item 9C. |
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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45 |
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Item 10. |
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47 |
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Item 11. |
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47 |
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Item 12. |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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47 |
Item 13. |
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Certain Relationships and Related Transactions, and Director Independence |
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47 |
Item 14. |
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47 |
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Item 15. |
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47 |
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58 |
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Cautionary Statement Regarding Forward-Looking Statements
This combined annual report on Form 10-K includes “forward-looking statements” within the meaning of the federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Holdings is a holding company which conducts all of its operations through CUSA and its subsidiaries. The “forward-looking statements” include our current expectations, assumptions, estimates and projections about the respective business and industry of Holdings and CUSA. They include statements relating to:
You can identify forward-looking statements by the use of words such as “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions. These statements are neither historical facts nor guarantees of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions and are, therefore, subject to risks, inherent uncertainties and other factors, some of which are beyond our control and difficult to predict. Such risks and uncertainties could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. In evaluating forward-looking statements, you should carefully consider the risks and uncertainties described in the “Risk Factors” section in Item 1A and elsewhere in this Form 10-K. All forward-looking statements attributable to either Holdings or CUSA or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors contained in this Form 10-K. Forward-looking statements contained in this Form 10-K reflect the views of Holdings and CUSA only as of the date of this Form 10-K. Neither Holdings nor CUSA undertake any obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Cinemark Holdings, Inc. is a Delaware corporation incorporated on August 2, 2006. Cinemark USA, Inc. is a Texas corporation incorporated in 1984 and a wholly-owned subsidiary of Cinemark Holdings, Inc. Our principal executive offices are at 3900 Dallas Parkway, Plano, Texas 75093. Our telephone number is (972) 665-1000. General information about us can be found at www.cinemark.com. All annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available on Holdings’ investor relations website at ir.cinemark.com free of charge under the heading "SEC Filings" as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission, or the SEC. Additionally, all filings with the SEC can be accessed on the SEC's website at www.sec.gov.
Unless the context otherwise requires, all references to “we,” “our,” “us,” “the Company” or “Cinemark” relate to Cinemark Holdings, Inc. and its consolidated subsidiaries. All references to CUSA relate to Cinemark USA, Inc. and its consolidated subsidiaries.
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PART I
Unless the context otherwise requires, all references to “we,” “our,” “us,” “the Company” or “Cinemark” relate to Cinemark Holdings, Inc. and its consolidated subsidiaries. All references to CUSA relate to Cinemark USA, Inc. and its consolidated subsidiaries. Where it is important to distinguish between the entities, the report either refers specifically to Holdings or CUSA. All references to Latin America are to Brazil, Argentina, Chile, Colombia, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Paraguay, Curacao and Ecuador. We closed our one theatre in Curacao in January 2023 and sold our Ecuador subsidiary in September 2023. Unless otherwise specified, all operating and other statistical data is as of or for the year ended December 31, 2023.
Item 1. Business
We are a leader and one of the most geographically diverse operators in the motion picture exhibition industry. As of December 31, 2023, we operated 501 theatres and 5,719 screens in the United States, or “U.S.”, and Latin America. Our U.S. circuit operated 309 theatres and 4,324 screens and our Latin America circuit operated 192 theatres and 1,395 screens across 13 countries. Our significant and diverse presence in the U.S. and Latin America has made us an important distribution channel for movie studios and other content providers. We believe our portfolio of high-quality theatres with multiple platforms provides a preferred destination for moviegoers and has contributed to our consistent industry-leading results.
As of December 31, 2023, we managed our business under two reportable operating segments: U.S. markets and international markets. See Note 22 to the consolidated financial statements.
Impact of COVID-19 Pandemic
The impact of the COVID-19 pandemic had an unprecedented effect on the theatrical exhibition industry. We temporarily closed our theatres in the U.S. and Latin America during March of 2020 at the onset of the COVID-19 outbreak. We reopened theatres as soon as local restrictions and the status of the COVID-19 pandemic would allow. All of our domestic and international theatres were reopened by the end of 2021. After reopening our theatres, we faced ongoing challenges with the significant reduction in the volume of new film releases. The industry has made significant progress in its recovery from the COVID-19 pandemic; however its ongoing recovery continues to be contingent upon several key factors, including the volume of new film content available, which has also been impacted by the recent writers’ and actors’ guild strikes, the box office performance of new film content released, the duration of the exclusive theatrical release window and evolving consumer behavior with competition from other forms of in-and-out of home entertainment.
Motion Picture Exhibition Industry Overview
Domestic
Preliminary estimates indicate that North American box office revenues were approximately $9.1 billion for 2023, up more than 21% compared with 2022 due primarily to an increase in the volume of new films released.
The following table represents the results of surveys by Motion Picture Association, or MPA, published in March 2022, and The Cinema Foundation, published in March 2023, outlining the historical trends in North American box office performance for the five-year period from 2018 through 2022. Box office performance has historically been primarily dependent on the quality, quantity and timing of film product.
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North America |
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Box Office Revenue |
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Attendance |
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Average Ticket |
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Year |
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($ in billions) |
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(in billions) |
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Price |
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2018 |
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$ |
11.9 |
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1.30 |
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$ |
9.11 |
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2019 |
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$ |
11.4 |
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1.24 |
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$ |
9.16 |
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2020 |
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$ |
2.2 |
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0.24 |
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$ |
9.37 |
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2021 |
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$ |
4.5 |
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0.47 |
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$ |
9.57 |
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2022 |
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$ |
7.5 |
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n/a (1) |
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$ |
10.53 |
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Films released during the year ended December 31, 2023 included Barbie, The Super Mario Bros. Movie, Spider-Man: Across the Spider-Verse, Guardians of the Galaxy Vol. 3, Oppenheimer, The Little Mermaid, Ant-Man
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and the Wasp: Quantumania, John Wick: Chapter 4, Sound of Freedom, Taylor Swift | The Eras Tour concert film, The Hunger Games: The Ballad of Songbirds and Snakes, Five Nights at Freddy’s, Wonka, and Trolls Band Together, among other films.
Films scheduled for release in 2024 include Madame Web, Dune: Part Two, Ghostbusters: Frozen Empire, Kung Fu Panda 4, The Fall Guy, Furiosa, Kingdom of the Planet of the Apes, Inside Out 2, A Quiet Place: Day One, Despicable Me 4, Deadpool 3, Joker: Folie à Deux, Venom 3, Wicked - Part I, Mufusa: The Lion King, and Sonic the Hedgehog 3, among other films.
International
Preliminary estimates for Latin American box office revenues were approximately $2.4 billion for 2023, up more than 33% compared with 2022.
Box office performance in Latin America is dependent upon the quantity, quality and timing of Hollywood film product, and to a lesser extent, local film product. The performance in Latin American markets is also impacted by political and social conditions, growing populations, and continued retail development.
Drivers of Continued Industry Success
We believe the long-term fundamentals of our industry remain intact:
Consumer Enthusiasm for Theatrical Movie-Going Remains Strong. Sustained consumer enthusiasm to view compelling films in a shared, larger-than-life, cinematic environment continues to be demonstrated across all genres of films, segments of audiences, and periods of the year. Positive box office growth, aligned with film volume recovery and record-setting results of an expansive range of titles across a wide array of film genres further underscore that experiencing captivating film content in a theatrical setting remains an important part of culture and consumer entertainment agendas.
A Theatrical Release Enhances a Film’s Promotional Impact and Overall Asset Value. Theatrical exhibition has long been the primary distribution channel for launching new major motion picture releases. A theatrical release provides an enhanced promotional platform for filmed entertainment content by heightening its exposure, increasing its perceived quality, strengthening recall, and driving greater viewing interest. Furthermore, experiencing content in a shared theatrical environment elevates emotions and engagement with stories and characters, which builds larger brands, franchises, and cultural moments. It also provides an incremental revenue stream, while strengthening performance in downstream distribution channels, including streaming, which enhances overall asset value. Based on these benefits, as well as commentary provided by our film distribution partners, we anticipate the volume of films released each year will continue to recover to historical levels.
Resilient Industry Across Technology Innovations and Economic Cycles. Theatrical movie-going remains one of the most convenient and affordable forms of out-of-home entertainment. As such, it has proven resilient to competition for consumers’ leisure spending, as well as inflationary and recessionary periods. For example, North American industry box office grew in six of the last eight recessions. Additionally, theatrical movie-going has demonstrated stable, long-term growth trends across various technological innovations, including VHS, internet, DVD and streaming.
Our Strategy
Our strategic objectives prioritize experiential consumer-based, revenue-generating, and productivity-driving initiatives, including:
Deliver an Extraordinary Guest Experience. We aim to differentiate our theatres through consistent investment in high-demand consumer amenities that provide a larger-than-life, cinematic entertainment experience with top-notch guest service. Examples of amenities include state-of-the-art sight and sound technology, premium large format auditoriums, recliners, and motion seats, as well as expansive food and beverage offerings. We believe our ongoing focus on providing an extraordinary guest experience is a primary factor of our consistent industry-leading results.
Maximize Attendance and Box Office While Expanding Revenue Opportunities. We actively focus on maximizing attendance and box office results through pricing strategies, sophisticated showtime planning, and pursuit of alternative content that appeals to a broad consumer base. We also continue to invest in strengthening and leveraging our omni-channel marketing platforms and loyalty programs to expand our audience base, increase moviegoing
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frequency and strengthen loyalty to our brand. Additionally, we seek to drive ancillary revenue opportunities through expanding the food, beverage and merchandise products we offer, simplifying speed of service through space management improvements and online mobile ordering, and extending the availability of our offerings beyond our theatres via third-party delivery platforms. Furthermore, we look to monetize our facilities with opportunities including game rooms and private events.
Maintain a Disciplined Focus on Productivity and Profitability. We remain disciplined in our pursuit of continuous improvement, seeking opportunities to simplify processes, streamline operations, remove inefficiencies, and drive productivity. Areas of emphasis include further enhancing our workforce management tools and processes, strengthening inventory management, optimizing showtime planning, leveraging advanced sourcing strategies, and expanding automation opportunities. We continue to enhance data management and analytics to strengthen our decisions and maximize our overall potential. Furthermore, as part of our ongoing focus on profitability, we continuously optimize our footprint, assessing our global circuit to ascertain the most advantageous strategies for growth, recalibration, and strengthening of our theaters to deliver sustained long-term returns.
Competitive Strengths
We believe the following strengths have allowed us to compete effectively in the past and will continue to be our guiding principles:
Disciplined Operating Philosophy. Our operating philosophy focuses on creating an extraordinary guest experience, maintaining favorable theatre-level economics, controlling operating costs and effectively reacting to changes in economic and market conditions.
Balanced Approach to Investment and Capital Allocation. Our balanced and disciplined investment approach centers on thoughtfully reinvesting in our existing theatres, building new theatres and acquiring quality theatres that will complement our circuit. We have long believed in maintaining a strong balance sheet and ensuring our capital investments earn a solid return. This philosophy has proven to be successful for us over varying economic cycles and industry challenges. We remain disciplined with our cash management and capital resource allocation strategies, while continuing to invest in the long-term health of our circuit.
Leading Position in Our U.S. and Latin American Markets. We have a leading market share in most of the U.S. markets we serve, which includes a presence in 42 states. For the year ended December 31, 2023, we ranked either first or second, based on box office revenues, in 21 of our top 25 U.S. markets, including Dallas, the San Francisco Bay Area, Houston, Salt Lake City, Sacramento, Cleveland, Austin and Las Vegas. We were one of the first circuits to begin reopening theatres in the U.S. during 2021, gaining market share of the overall North American box office as a result. We maintained a meaningful portion of these market share gains through 2023.
We have a significant presence in major cities in Latin America, with theatres in 15 of the 20 largest metropolitan areas in Latin America as of December 31, 2023. We are the largest exhibitor in Brazil and Argentina and have significant market presence in Colombia, Peru and Chile. Our geographic diversity makes us an important global distribution channel for the movie studios. Similar to the U.S., we gained overall market share in Latin America upon reopening all of our theatres during 2021. We have retained a meaningful portion of that market share through 2023.
State-of-the-Art Theatre Circuit. We build new theatres and consistently invest in our existing theatres to maintain a state-of-the-art movie-going experience, which we believe makes our theatres preferred destinations for moviegoers in our markets. Making quality investments in our circuit will continue to be one of our primary objectives.
We offer our guests a premium large format experience through our 293 XD auditoriums, which represents the largest exhibitor-branded premium large format footprint in the world, 15 IMAX auditoriums and six ScreenX auditoriums across our worldwide circuit. Our XD auditoriums offer a premium experience utilizing the latest in digital projection and enhanced custom sound, including Barco Auro-Max 11.1 sound systems in select locations. The XD experience includes wall-to-wall screens, wrap-around sound, plush seating, reclining seats in a majority of our XD auditoriums and a maximum comfort entertainment environment for an immersive experience. The benefits of our XD auditoriums include program flexibility, as we can show the content of our choice with no additional revenue share component outside of routine film rental.
We started a multi-year project in 2022 to strategically convert our auditoriums to more energy efficient Barco RGB laser projectors, which provide greater light output than the current technology, further enhancing the
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movie-going experience. As of December 31, 2023, we have transitioned approximately 14% of our auditoriums to the new laser projectors across our worldwide circuit.
We have incorporated Luxury Lounger heated recliner seats into all of our recent domestic new builds and have repositioned many of our existing domestic theatres to offer this premium seating feature. We currently feature these heated recliner luxury loungers in 68% of our total domestic circuit.
We also have auditoriums that offer seats with immersive cinematic motion, which we refer to as motion seats, in 335 auditoriums throughout our circuit. These motion seats are programmed in harmony with the audio and video content of the film and further immerse guests into the on-screen action.
We offer enhanced food and beverages such as gourmet pizzas, burgers, and sandwiches, and a selection of beers, wine and cocktails, all of which can be enjoyed in the comfort of the auditoriums, at a majority of our theatres. We also offer full bars or dine-in areas in many of our locations and we are continuing to expand these amenities to additional locations. In the U.S., we offer advanced mobile concession ordering at virtually all of our U.S. theatres allowing guests to pre-order select concession products and pick them up at the concession stand upon arrival or have them delivered to their seat. We also offer mobile concession ordering in all of our Latin American theatres and delivery to seats in a select number of our premier Latin American theatres.
Experienced Management. Our global management team has extensive industry experience and proven track records. Many of our key leaders have over 20 years of industry experience. Additionally, our country general managers are local citizens familiar with political, social, cultural and economic factors impacting their country, which enables them to more effectively manage the local business. Our global management team has successfully navigated us through many industry and economic cycles over the years.
Theatre Operations
As of December 31, 2023, we operated 501 theatres and 5,719 screens in 42 U.S. states and 13 Latin American countries. We opened our first theatre in the U.S. in 1984. Our domestic circuit has expanded through acquisitions and organic growth, and we currently have theatres in 104 designated market areas. We first entered Latin America when we opened a theatre in Santiago, Chile in 1993. Since then, through a focused international growth strategy, we have developed into one of the most geographically diverse theatre circuits in the region. We have balanced our risk through a diversified international portfolio, which included theatres in 15 of the 20 largest metropolitan areas in Latin America as of December 31, 2023. We are a market leader in Brazil and Argentina, where we are the largest exhibitor. We also have significant market presence in Colombia, Peru and Chile.
The following table summarizes the geographic locations of our theatre circuit as of December 31, 2023.
Country |
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Total Theatres |
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Total Screens |
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United States |
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309 |
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4,324 |
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Brazil |
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85 |
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622 |
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Argentina |
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23 |
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199 |
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Colombia |
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30 |
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177 |
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Chile |
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20 |
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142 |
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Central America (1) |
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17 |
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114 |
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Peru |
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14 |
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113 |
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Bolivia |
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1 |
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13 |
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Paraguay |
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2 |
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15 |
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Total (2) (3) |
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501 |
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5,719 |
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Content
We offer a wide variety of content at our theatres. We monitor upcoming film releases and other content and work diligently with film distributors to license content that we believe will be most successful in our theatres. We play mainstream films from many different genres, such as animated films, family films, dramas, comedies, horror and action films. We offer content in both 2-D and 3-D formats in all of our theatres, and in many locations, we offer
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either our own premium large format, XD or IMAX. We also offer a format that features motion seats and added sensory features.
We offer a variety of alternative entertainment content for our guests. Examples include concert, sporting and gaming events, as well as art, independent, faith-based, and multicultural foreign language films. In certain Latin American markets where we operate, we also offer local film product to our guests. Additionally, we have the functionality and technological infrastructure to live-stream events via satellite network across our portfolio of theatres in the U.S. and Latin America.
In addition, our joint venture, AC JV, LLC, with Regal Entertainment Group and AMC Entertainment, Inc. provides marketing and distribution of live and pre-recorded entertainment programming to augment theatres’ feature film schedules. AC JV, LLC, referred to as Fathom Events, is the largest distributor of documentaries and inspirational content as well as classic films and performing arts, such as the Metropolitan Opera.
Film Licensing
In the U.S., our corporate film department negotiates with film distributors to license films for each of our domestic theatres. Local film personnel in our international offices negotiate with local offices of major film distributors, local film distributors and independent content providers to license films for our international theatres. Film distributors determine film release dates and plan and fund the related film marketing campaigns, while we are responsible for booking the films at each of our theatres at the optimal showtimes for our guests.
In both our domestic and international locations, film rental fees are based on a film’s box office receipts. The majority of film rental rates are negotiated on a sliding scale formula, under which the rate is based on a standard rate matrix that is established with each content provider prior to a film’s theatrical run. We may also negotiate some film rental rates on a firm terms formula, a percentage of box office receipts negotiated prior to a film’s theatrical run, or a rate that is negotiated after a film’s theatrical run.
Food and Beverage
Concession sales are our second largest revenue source. We have expanded concession sales by enhancing our offerings and adapting to our customers’ changing preferences, as discussed below.
Product Mix. Core concession products offered at all of our theatres include various sizes and types of popcorn, soft drinks, coffees, non-carbonated drinks, candy and quickly-prepared or pre-prepared food, such as hot dogs, pizza, pretzel bites, nachos and ice cream. Our food and beverage offerings may vary in particular markets based on consumer preferences. We offer adult beverage options for our guests including beer, wine and cocktails, freshly-made signature Pizza Hut pizzas, burgers and sandwiches, as well as some healthier snack options and diverse ethnic foods based on market demographics.
We have dedicated category managers that monitor product sales, upcoming content and events, and make adjustments to product mix on a theatre-by-theatre or market-by-market basis. This approach also allows us to efficiently activate and manage both national or regional product launches and promotional initiatives to further grow food and beverage sales.
New products and promotions are introduced on a regular basis to increase concession purchase incidence from existing consumers as well as to attract new consumers. In certain international countries and in all of our domestic theatres, we offer a free loyalty program that routinely offers food and beverage promotions and rewards. Our paid subscription programs allow our guests to receive exclusive concessions discounts.
Innovation. We offer unique movie-themed merchandise to customers both in our theatres and online to enhance their experience and drive incremental revenue. Additionally, we have partnered with key strategic suppliers to create an online store that offers unique merchandise to guests across the country from the comfort of their homes. We are also the first major theatre exhibition company to partner with Door Dash, Grub Hub, and Uber Eats, to allow consumers to have our concession offerings delivered to their homes.
Theatre Design. Our theatres are designed to optimize the guest purchase experience at the concession stands to facilitate serving guests in an expedited manner. We strategically design large concession stands to heighten visibility, reduce the length of concession lines, and improve traffic flow around the concession stands. We incorporate queue lines and self-serve candy cases and bottled drink coolers at our concession stands to help provide convenience for our guests, drive impulse purchases and increase product visibility for these two core categories. We also have
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self-service cafeteria-style concession areas in many of our domestic theatres, which allow customers to select their own food and refreshments and proceed to the cash register when they are ready. This design allows for more efficient service, and superior visibility of concession items. We also have lobby bars and VIP lounges in many domestic and international theatres.
Our proprietary mobile concessions ordering capability allows moviegoers to purchase their cinema snacks in advance and have them waiting to be picked up upon arrival or delivered directly to their seat. This functionality streamlines the guest experience, adding convenience and enhanced guest service for our customers. As of December 31, 2023, mobile concession ordering is available at virtually all of our U.S. theatres. Similarly, guests in our Latin American locations can pre-pay for select concession products online or at kiosks within the theatre and pick them up at the concession stand.
Staff Training. Employees are continually trained on proper sales techniques, food preparation and handling, and maintaining the quality of our concession product offerings. Many employees are certified in food safety protocols and in serving alcoholic beverages.
Cost Control. We negotiate prices, volume-based rebates and promotional-based rebates for concession products directly with our suppliers. Concession products are generally managed through a distribution network, with theatres placing and receiving orders directly with a distributor. We monitor inventory levels at every theatre to ensure proper stock levels are maintained to appropriately serve our guests.
Supply chain interruptions and inflationary pressures may impact costs and limit product availability. Our food and beverage costs have been especially susceptible to inflationary pressures in more recent periods, particularly for core commodities, which recently experienced elevated inflationary pressures. In an effort to mitigate these pressures, we focus on identifying alternative products sourced from a variety of suppliers as well as implementing strategic pricing actions to help offset the impact of these pressures.
Screen Advertising
Our U.S. theatres are part of the in-theatre digital network operated by National CineMedia, LLC, or NCM. NCM provides advertising to our theatres through its branded “Noovie” pre-show entertainment program and also handles certain lobby promotions and displays for our theatres. We believe that the reach, scope and digital delivery capability of NCM’s network provides an effective platform for national, regional and local advertisers to reach our audiences. We receive a monthly theatre access fee for participation in the NCM network, which includes screen rental revenue on a per patron basis and on a revenue share basis depending on the placement of the advertisement.
Throughout our international markets, we have developed our Flix Media brand that handles screen advertising functions in all of our Latin American countries. Our Flix Media marketing personnel work with local agencies and advertisers to coordinate screen advertising in our theatres as well as other theatres in our markets. In addition to screen advertising in our theatres, we continue to expand Flix Media’s services to include, among other things, alternative content, digital media and other synergistic advertising opportunities.
Marketing and Promotions
Digital Marketing. Our investment in digital marketing and customer experience over the past several years has enabled us to expand our reach to our guests, communicate with them on a consistent basis, and streamline their digital customer journey. We continue to adapt our platforms to engage movie-goers more effectively and make it as compelling and simple as possible for them to purchase their next movie ticket and concessions from us. Through both organic and paid marketing efforts, we keep our millions of guests informed through email, social media, website and mobile app updates, and advertising to promote upcoming content and keep Cinemark elevated in the moviegoer consideration set.
Transforming the digital customer journey has enabled us to more effectively reach movie-goers through targeted and refined search engine optimization, and gives the customer a better experience once they are directed to our website or app. We regularly conduct comprehensive analysis of the customer journey on our channels, making updates that reduce clicks and decrease the friction from search to ticket purchase. Ongoing enhancements result in higher traffic volume to our digital channels and increased ticket and concession purchases.
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In an effort to more deeply engage with our guests, the visual identity and physical flow of our theatres are regularly assessed. This includes keeping all signage, merchandise, food and beverage vessels and employee attire updated and reflective of the modern experience.
Campaigns and Promotions. We market our theatres and special events, including new theatre grand openings, remodel re-openings and VIP events, using email/in-app push messaging, social media communications, digital advertising, and various forms of traditional media advertising. We exhibit previews of coming attractions and current films as part of our on-screen pre-feature program. We offer guests access to movie times, the ability to buy their tickets and reserve their seats in advance, purchase concessions in advance and purchase gift cards at our website www.cinemark.com and via our mobile applications. Guests can subscribe to our emails and push notifications to receive information about current and upcoming films and events at their preferred Cinemark theatre(s), including details about upcoming XD movies, advanced ticket sales, screenings, special events, concerts, live broadcasts, contests, promotions, and our latest concessions and merchandise offerings. We partner with film distributors on a regular basis to promote upcoming films through local, regional and national programs, many of which are exclusive to our theatres.
Social Media. In the evolution of our external communication strategy, we are meeting movie-goers where they are and ensuring we are present as they scroll throughout the day. We interact with moviegoers every day on social media platforms, such as Instagram, Facebook, Snapchat, X (formerly Twitter) and TikTok to provide advanced ticketing, promotions, and event information and to monitor and respond to guests’ questions and feedback.
Membership and Loyalty. Our domestic subscription membership program, Movie Club, offers guests a standard monthly ticket credit, member-pricing for a companion ticket and concession and other transaction discounts for their choice of a monthly or annual fixed price. Movie Club is a unique option to reward our loyal guests and allows us to stay informed of frequent moviegoers’ preferences. Movie Club includes a premium tier, Movie Club Platinum, allowing members with a high visit frequency and/or high volume of ticket purchases during the year to earn additional movie ticket credits, receive an increased concessions discount and the ability to purchase additional tickets at a discounted price.
We offer a free domestic loyalty program, Movie Fan, to our guests in the U.S. Movie Fan allows our moviegoers to earn one point for every dollar they spend. Points can then be redeemed for tickets, concession items and discounts, as well as unique and limited-edition merchandise that relate to films currently playing in our theatres. Our loyalty programs are closely monitored, and new strategies are consistently tested to incentivize consumers to prioritize visiting our theatres.
We also have membership and loyalty programs in most of our international markets that either allow customers to pay a nominal fee for an annual membership card that provides them with certain admissions and concession discounts or that allows guests to earn loyalty points for each purchase. Similar to the Movie Fan program, our points-based international programs offer discounts on movie tickets and concessions.
Our global loyalty programs put us in direct contact with our moviegoers and provide opportunities for us to partner with the studios and our suppliers through targeted promotions.
Competition
We are one of the leaders in the motion picture exhibition industry. We compete against local, regional, national and international exhibitors with respect to attracting guests, licensing films and developing new theatre sites. Our primary U.S. competitors include Regal and AMC and our primary international competitors, which vary by country, include Cinépolis, Cine Colombia, CinePlanet, Kinoplex (GSR), UCI, Royal Films and Araujo.
We are generally able to book films at our theatres without regard to the film bookings of other exhibitors. Our success in attracting guests can depend on customer service quality, location, theatre capacity, quality of projection and sound equipment, film showtime availability and ticket prices.
We compete for new theatre sites with other movie theatre exhibitors as well as other entertainment venues. Securing a potential site depends upon factors such as commercial terms, available investment resources, theatre design and capacity, revenue potential and financial stability of developers as well as exhibitors.
We face competition from other forms of out-of-home entertainment competing for the public’s leisure time and disposable income, including family entertainment centers, concerts, theme parks and sporting events. We also
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face competition for guests from a number of alternative film distribution channels, such as streaming services, digital downloads, video on-demand and network television.
Seasonality
Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. The most successful motion pictures have historically been released during summer months in the U.S., extending from May to July, and during the holiday season, extending from November through year-end. In our Latin American markets, while Hollywood content has similar release dates as in the U.S., the local holidays and seasons vary. The unexpected emergence of a hit film during other periods or the failure of an expected success at a key time could alter this seasonality trend. The timing, quantity and quality of film releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or for the same period in the following year.
Corporate Operations
Our global headquarters, referred to as the Cinemark Service Center, or CSC, is located in Plano, Texas. Personnel at the CSC provide oversight and support for our domestic and international theatres and includes our executive team and department heads in charge of film licensing, food and beverage, theatre operations, theatre construction and maintenance, real estate, human resources, marketing, legal, finance, accounting, tax and information technology. Our U.S. operations are comprised of regions headed by a regional vice president. We have eight regional offices in Latin America responsible for the local management of theatres in 13 countries as of December 31, 2023 (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are managed out of one Central American regional office). Each regional office is headed by a general manager or a member of our international management team with additional personnel responsible for film licensing, marketing, human resources, information technology, operations and finance. We have divisional or regional chief financial officers in several of the international countries in which we operate.
Human Capital
Our business is seasonal and therefore, our headcount can vary throughout the year depending on the timing and success of movie releases. We do not have unionized employees within our domestic employee base, however many of our international locations are subject to union contracts.
We currently have approximately 17,500 employees in the U.S., approximately 21% of whom are full-time employees and 79% of whom are part-time employees. We have approximately 9,300 employees in our international markets, approximately 57% of whom are full-time employees and approximately 43% of whom are part-time employees.
In our Mission, Vision and Values Statement, our employees form the core of our Cinemark Values. We strive to (i) act with honesty and integrity, respect and care for each other, our guests, communities and partners, (ii) provide a safe environment for our global employees and guests, (iii) be the best in what we do and (iv) empower our people to make decisions and take responsibility. Guided by our Cinemark Values, we are committed to creating a company where everyone is included and respected, and where we support each other in reaching our full potential. We take pride in the fact that many of our employees, ranging from field employees to executive management, have significant tenure with the Company.
To attract and retain the most qualified talent, we offer competitive benefits, including market-competitive compensation, healthcare, paid time off, parental leave, free movie passes and in the U.S., a 401(k) retirement savings and investment plan with generous Company match. Additionally, many of our CSC employees are eligible to work a hybrid schedule. We support the continuous development of professional, technical and leadership skills of our employees by offering tuition assistance, skills development courses and leadership development training in partnership with reputable institutions.
To foster a corporate culture of transparency and collaboration, our senior management regularly conducts “town-hall” style meetings with employees to share, among other matters, the Company’s performance, business conditions and market challenges, strategies and initiatives, and to respond to employee concerns through question-and-answer sessions. Employees in the U.S. are also encouraged to provide feedback about their experience through periodic employee engagement surveys. These voluntary surveys provide overall and department-specific reports and
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enable us to improve employee experience and culture. We aspire to provide a safe, open and accountable work environment for our employees. We also provide a hotline for all employees to report workplace concerns and violations with the option to report on an anonymous basis. We address such concerns and take appropriate actions that uphold our Cinemark Values.
In recognition and gratitude for our moviegoing communities, we strongly encourage team members to give back to the community and host periodic service days for team members. Through Cinemark Cares, we support local and national charitable organizations through monetary and product donations, or donations of employees’ time or expertise. We are a proud long-term partner of several charities and host an annual golf tournament to raise funds for these and other selected charities.
Regulations
The distribution of motion pictures is largely regulated by antitrust laws and was the subject of numerous antitrust cases in the past. The manner in which we can license films from certain major film distributors has been influenced by consent decrees and other court orders resulting from these cases. Consent decrees that bound certain major film distributors expired during 2022. These consent decrees required distributors to offer and license films to exhibitors, including Cinemark, on a theatre-by-theatre and film-by-film basis. Consequently, exhibitors have not entered into long-term arrangements with major distributors but must negotiate for licenses on a theatre-by-theatre and film-by-film basis. While the consent decrees may no longer be in effect, we are still subject to the antitrust laws, and we do not anticipate a material shift in the way films are licensed.
We are subject to various general regulations applicable to our operations including the Americans with Disabilities Act of 1990, or the ADA, and regulations promulgated by the U.S. Food and Drug Administration and certain state laws that require nutrition labels for certain menu items. Our domestic and international theatre operations are also subject to federal, state and local laws governing such matters as data privacy, wages, working conditions, citizenship, health and sanitation requirements and various business licensing and permitting.
Financial Information About Geographic Areas
We currently have operations in the U.S., Brazil, Argentina, Chile, Colombia, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, and Paraguay, which are reflected in the consolidated financial statements. See Note 22 to the consolidated financial statements for segment information and financial information by geographic area.
Item 1A. Risk Factors
An investment in Holdings’ common stock or Holdings’ or CUSA’s debt securities involves risks and uncertainties, and our actual results and future trends may differ materially from our past or projected future performance. We urge investors to consider carefully the risk factors described below in addition to the other information contained in this report, in evaluating our Company and our business. It is not possible to identify all risk factors, and additional risks and uncertainties not presently known to us or that we currently believe to be immaterial that may also materially impact our business operations.
Risks Related to Our Business, Economic, Market and Operating Conditions
A variety of uncontrollable events may disrupt our businesses, reduce guest attendance, or increase the cost or reduce the profitability of providing our products and services.
Our results of operations can be significantly and adversely affected in the U.S., Latin America or in specific regions as a result of a variety of factors beyond our control, including: health concerns (including as it was by COVID-19 and could be by future health emergencies, endemics, epidemics and pandemics); adverse weather conditions arising from short-term weather patterns or long-term climate change, including catastrophic events or natural disasters such as hurricanes, typhoons, floods, droughts, wildfires and earthquakes; international, political or military developments, including trade and other international disputes and social unrest; macroeconomic conditions, including a decline in economic activity, inflation, deflation and foreign exchange rate fluctuations; and terrorist attacks. These events and others, such as fluctuations in energy costs and computer virus attacks, intrusions, ransom ware or other widespread computing or telecommunications failures, may also damage our ability to provide our services. We may
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have insurance coverage with respect to some, but not all, of these events. Moreover, the costs of protecting against such incidents reduces the profitability of our operations.
For example, the impact of the COVID-19 pandemic had an unprecedented impact on the theatrical exhibition industry. While the industry has made significant progress in its recovery from the COVID-19 pandemic, our industry and our business continues to be impacted by disruptions in the film production cycle. Most recently the Hollywood writers’ and actors’ guild strikes caused film production to be temporarily halted or delayed and new film releases were postponed, resulting in a reduction in the volume of new films available for theatrical exhibition. As a result, we are not currently generating attendance and revenue from admissions at levels comparable to what we had generated historically.
We obtain insurance against the risk of losses relating to some of these events, generally including certain physical damage to our property and resulting business interruption, certain injuries occurring on our property and some liabilities for alleged breach of legal responsibilities. When insurance is obtained it is subject to deductibles, exclusions, terms, conditions and limits of liability. The types and levels of coverage we obtain vary from time to time depending on our view of the likelihood of specific types and levels of loss compared to the cost of obtaining coverage for such types and levels of loss. We may experience material losses not covered by our insurance.
Our business depends on film production and performance.
Our business depends on both the availability of films for exhibition in our theatres and the success of those films in our markets. Reduced volume of film releases, poor performance of films, the disruption in the production of films due to events such as a strike by directors, writers, actors or other industry related unions or guilds, a reduction in financing options for the film distributors, a reduction in the production and marketing efforts of the film distributors to make and promote their films, or the consolidation of major film distributors could have an adverse effect on our business by resulting in fewer patrons and reduced revenue. For example, the May 2, 2023 strike by the Writers Guild of America, which lasted for almost five months, and the July 14, 2023 strike by members of SAG-AFTRA, the union representing television and movie actors, which lasted almost four months, together resulted in a decrease in film content released in 2023 and will cause a decrease in 2024 film content due to production delays that have forced studios to push films previously slated to be released in 2023 and 2024 to 2025 and 2026. Also, while the quantity of new film releases available for theatrical exhibition continued to improve in 2023 and caused the industry to further recover from the effects of the COVID-19 pandemic, the volume of film content has not reverted to historical levels. The volume of new films has not, and may not, fully recover to pre-pandemic levels which would materially impact our business. In addition, certain studios have reduced the window for video and digital releases or released films directly to alternative distribution channels such as streaming services simultaneous with a theatrical release. Studios may determine that certain types of film content will not be released for theatrical exhibition in the future and will go straight to streaming platforms, further impacting the quantity of films available.
Our results of operations fluctuate on a seasonal basis.
Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres. The major film distributors generally release the films they anticipate will be most successful during the summer and holiday seasons. Consequently, we typically generate higher revenue during those periods. In our Latin American markets, while Hollywood content has similar release dates as in the U.S., the local holidays and seasons vary. The unexpected emergence of a successful film during other periods or the failure of an expected success at a key time could alter this seasonality trend. Due to the dependency on the success of films released from one period to the next, results of operations for one period may not be indicative of the results for future periods.
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A deterioration in relationships with film distributors could adversely affect our ability to obtain commercially successful films.
We rely on the film distributors to supply the films shown in our theatres. The film distribution business is highly concentrated, with six major film distributors accounting for approximately 85% of U.S. box office revenues and 45 of the top 50 grossing films during 2023. Film distributors license films to exhibitors on a theatre-by-theatre and film-by-film basis. Consequently, we cannot guarantee a supply of films by entering into long-term arrangements with major distributors. A deterioration in our relationship with any of the major film distributors could adversely affect our ability to obtain commercially successful films and to negotiate favorable licensing terms for such films, both of which could adversely affect our business and operating results.
We face intense competition for patrons and films which may adversely affect our business.
The motion picture exhibition industry is highly competitive. We compete against local, regional, national and international exhibitors in many of our markets. We compete for both patrons and licensing of films. In markets where we do not face nearby competitive theatres, there is a risk of new theatres being built. The degree of competition for patrons is dependent upon such factors as location, theatre capacity, presentation quality, film showtime and availability, customer service quality, products and amenities offered, and ticket prices. The principal competitive factors with respect to film licensing include the theatre’s location and its demographics, the condition, capacity and grossing potential of each theatre, and licensing terms. We also face competition from new concept theatres such as dine-in theatres, tavern style theatres and family entertainment centers that open in close proximity to our conventional theatres. If we are unable to attract patrons or license successful films, our business may be adversely affected.
An increase in competing forms of entertainment or the use of alternative film distribution channels may reduce movie theatre attendance and limit revenue growth.
We compete with other forms of out-of-home entertainment, such as family entertainment centers, concerts, theme parks, gaming and sporting events, for our patrons’ leisure time and disposable income. We also face competition for patrons from a number of alternative film distribution channels, such as streaming, digital downloads, video on-demand and network television. We have seen an expansion in some of these distribution channels in recent years. A significant increase in popularity of these alternative film distribution channels, competing forms of entertainment or improvements in technologies available at home could have an adverse effect on our business and results of operations.
Our results of operations may be impacted by the reduction, or elimination of, video and digital release windows.
The average video and digital release window, which represents the time that elapses from the date of a film’s theatrical release to the date a film is available for DVD, was approximately 90 days and digital purchase for ownership (also known as electronic sell-through) was approximately 74 days for several years prior to the COVID-19 pandemic. During the COVID-19 pandemic, certain studios adopted strategies that reduced, or in some cases eliminated, the release windows. While the dynamic release window has coalesced to around 45 days for major films, select studios may release certain movie titles to their own streaming platforms either simultaneously with theatrical releases or bypass theatrical releases altogether. While this trend has largely diminished in 2022 and 2023, studios may reduce or eliminate the windows for certain films. If our guests choose to wait for an in-home release rather than attend a theatre to view the film, our business and results of operations, financial condition and cash flows may be adversely impacted.
Our foreign operations are subject to adverse regulations, economic instability and currency exchange risk.
We had 192 theatres with 1,395 screens in 13 countries in Latin America as of December 31, 2023. Brazil represented approximately 7.6% of our consolidated 2023 revenue. Governmental regulation of the motion picture industry in foreign markets differs from that in the U.S. Changes in regulations affecting prices and quota systems requiring the exhibition of locally-produced films may adversely affect our international operations. Our international operations are subject to certain political, economic and other uncertainties not encountered by our domestic operations, including risks of severe economic downturns and high inflation. We also face risks of currency fluctuations, hard currency shortages and controls of foreign currency exchange and cash payments to the U.S., all of which could have an adverse effect on the results of our operations and liquidity.
Tight labor market and loss of key personnel may negatively impact our operations and operating results.
Labor shortages may affect our ability to hire and retain employees. The success of our business depends on our ability to recruit and retain our theatre staff. Without proper staffing, wait times to buy tickets and concessions
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may be extended and operating hours may be reduced. These conditions could result in a poor guest experience, which could adversely affect future attendance. We could face similar challenges with respect to retaining corporate employees. Losing the services of one or more senior executives, or other key personnel, could adversely affect our ability to execute our business strategies and could have an adverse effect on our business, financial condition, and results of operations, especially if we were unable to timely employ a qualified replacement. Labor shortages could also result in rising wages, affecting our profits.
We are subject to impairment losses due to potential declines in the fair value of our assets.
We have a significant amount of long-lived assets. We evaluate long-lived assets for impairment at the theatre level. Therefore, if a theatre is directly and individually impacted by increased competition, adverse changes in market demographics, or adverse changes in the development or condition of the areas surrounding the theatre, we may record impairment charges to reflect the decline in estimated fair value of that theatre.
We also have a significant amount of goodwill and tradename intangible assets. Declines in our stock price or market capitalization, or declines in our attendance due to increased competition, macroeconomic conditions or other factors could result in impairments of goodwill and our intangible assets.
We are subject to uncertainties relating to future expansion plans, including our ability to identify suitable acquisition candidates or new theatre site locations, and to obtain financing for such activities on favorable terms or at all.
We have expanded our operations through targeted worldwide theatre development and acquisitions. We continue to pursue a strategy of expansion that involves the development of new theatres and may involve acquisitions of existing theatres and theatre circuits both in the U.S. and internationally. There is significant competition for new site locations and for existing theatre and theatre circuit acquisition opportunities. As a result of such competition, we may not be able to acquire attractive new site locations, existing theatres or theatre circuits on terms we consider acceptable. The pace of our growth may also be impacted by delays in site development caused by other parties. Acquisitions and expansion opportunities may divert a significant amount of management’s time away from the operation of our business. Growth by acquisition also involves risks relating to difficulties in integrating the operations and personnel of acquired companies and the potential loss of key employees of acquired companies. Our potential expansion strategy may not result in improvements to our business, financial condition, profitability or cash flows. Further, our expansion programs may require financing above our existing borrowing capacity and operating cash flows. We may not be able to obtain such financing on acceptable terms, or at all.
Risks Related to Financing and Liquidity
We have substantial long-term lease and debt obligations, which may restrict our ability to fund current and future operations and that restrict our ability to enter into certain transactions.
We have significant long-term debt service obligations and long-term lease obligations. As of December 31, 2023, Holdings had $2,432.1 million in long-term debt obligations, which included $1,972.1 million of CUSA debt and excludes unamortized debt issuance costs and original issue discount. As of December 31, 2023, Holdings and CUSA had $87.8 million in finance lease obligations and $853.3 million in long-term operating lease obligations. The substantial lease and debt obligations could:
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Holdings’ and CUSA’s ability to make scheduled payments of principal and interest on their respective indebtedness will depend on our ability to generate positive cash flows and on our future financial results. Our ability to generate positive cash flows is subject to general economic, financial, competitive, regulatory and other factors, some of which are beyond our control. As our industry recovers from the effects of the COVID-19 pandemic and the recent writers’ and actors’ guild strikes, we may not be able to generate cash flows at historical levels, or guarantee that future borrowings will be available under our senior secured credit facility, in an amount sufficient to enable us to pay our indebtedness. If our cash flows and capital resources are insufficient to fund our lease and debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to take any of these actions, and these actions may not be successful or permit us to meet our scheduled debt service obligations. Certain actions may be restricted under the terms of our existing or future debt agreements, including our senior secured credit facility.
If we fail to make any required payment under the agreements governing our indebtedness or fail to comply with the financial and operating covenants contained in our debt instruments, we would be in default. As a result, our debt holders would have the ability to accelerate the repayment of our outstanding indebtedness, and the lenders under our senior secured credit facility could terminate their commitments and foreclose against the assets securing their borrowings. We could be forced into bankruptcy or liquidation. The acceleration of our indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-default and cross-acceleration provisions. If our indebtedness is accelerated, we may not be able to repay our indebtedness or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our debt holders require immediate payment, we may not have sufficient assets to satisfy our obligations under our indebtedness.
A lowering or withdrawal of the ratings assigned or a change in outlook to our outstanding debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.
We are rated by nationally recognized rating agencies. The rating scales and methodologies used to derive individual ratings may vary from agency to agency. Credit ratings are issued by credit rating agencies based on evaluations of our ability to pay back our outstanding debt and the likelihood that we would default on that debt prior to its maturity. The credit ratings issued by the rating agencies represent the rating agency's evaluation of both qualitative and quantitative information for our company. The credit ratings that are issued are based on the rating agency’s judgment and experience in determining what information should be considered in giving a rating to a particular company. Ratings are always subject to change and there can be no assurance that our current ratings will remain the same for any given period of time.
Our debt currently has a non-investment grade rating, and any rating assigned could be lowered (or outlook thereof could be changed) or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes in our business or industry, so warrant. Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing. In particular, our access to the capital markets may be impacted, our other funding sources may decrease, the cost of debt may increase as a result of increased interest rates or fees, and we may be required to provide additional credit assurances, including collateral, under certain contracts or arrangements.
Holdings’ inability to raise funds necessary to settle conversions of, or to repurchase, the 4.50% Convertible Senior Notes (as defined below), upon a fundamental change as described in the indenture governing the 4.50% Convertible Senior Notes, may lead to defaults under such indenture and under agreements governing our existing or future indebtedness.
If Holdings settles the 4.50% Convertible Senior Notes with cash, or by a combination of cash and shares of our common stock, upon a fundamental change as described in the indenture governing the 4.50% Convertible Senior Notes, Holdings will be required to make cash payments with respect to the 4.50% Convertible Senior Notes being converted. However, Holdings may not have enough available cash or be able to obtain financing at the time it is required to settle the 4.50% Convertible Senior Notes being surrendered or converted. In addition, Holdings’ ability to settle the 4.50% Convertible Senior Notes or to pay cash upon conversion of the 4.50% Convertible Senior Notes is limited by the agreements governing CUSA’s existing indebtedness and may also be limited by law, by regulatory
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authority or by agreements that will govern future indebtedness. Holdings’ failure to settle the 4.50% Convertible Senior Notes at a time when the repurchase is required by the indenture governing the 4.50% Convertible Senior Notes or to pay cash payable on future conversions of the 4.50% Convertible Senior Notes as required by such indenture would constitute a default under such indenture. A default under the indenture governing the 4.50% Convertible Senior Notes or the fundamental change itself could also lead to a default under agreements governing CUSA’s existing or future indebtedness.
The conditional conversion feature of the 4.50% Convertible Senior Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the 4.50% Convertible Senior Notes is triggered, holders of the 4.50% Convertible Senior Notes will be entitled to convert the 4.50% Convertible Senior Notes at any time during specified periods at their option. If one or more holders elect to convert their 4.50% Convertible Senior Notes, Holdings may elect to satisfy its conversion obligations by payment and delivery of a combination of cash and shares of its common stock. Settlement of this conversion obligation through the payment of cash could adversely affect Holdings’ and CUSA’s liquidity. In addition, even if holders do not elect to convert their 4.50% Convertible Senior Notes, Holdings could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 4.50% Convertible Senior Notes as a current rather than long-term liability, which would result in a material reduction of its net working capital.
Conversion of the 4.50% Convertible Senior Notes may dilute the ownership interest of existing stockholders, or may otherwise depress the price of Holdings’ common stock.
The conversion of some or all of the 4.50% Convertible Senior Notes will dilute the ownership interests of existing stockholders to the extent Holdings delivers shares of its common stock upon conversion of any of the 4.50% Convertible Senior Notes. The 4.50% Convertible Senior Notes may from time to time in the future be convertible at the option of their holders prior to their scheduled terms under certain circumstances. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of its common stock. In addition, the existence of the 4.50% Convertible Senior Notes may encourage short selling by market participants because the conversion of the 4.50% Convertible Senior Notes could be used to satisfy short positions, or anticipated conversion of the 4.50% Convertible Senior Notes into shares of Holdings’ common stock could depress the price of Holdings’ common stock.
The 4.50% Convertible Senior Notes Hedge Transactions and Warrant Transactions (each as defined below) may affect the value of Holdings’ common stock.
In connection with the pricing of the 4.50% Convertible Senior Notes, Holdings entered into Hedge Transactions with, and sold Warrants (as defined below) to, Option Counterparties (as defined below). The Hedge Transactions are expected generally to reduce the potential dilution to Holdings’ common stock upon any conversion of the 4.50% Convertible Senior Notes and/or offset any cash payments Holdings is required to make in excess of the principal amount of converted 4.50% Convertible Senior Notes, as the case may be. The Warrants would separately have a dilutive effect to the extent that the market price per share of Holdings’ common stock exceeds the strike price of any Warrants on the applicable expiration dates unless, subject to the terms of the Warrants, Holdings elects to cash settle the Warrants. In addition, the Option Counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to Holdings’ common stock and/or purchasing or selling Holdings’ common stock or other securities of Holdings’ in secondary market transactions prior to the maturity of the 4.50% Convertible Senior Notes (and are likely to do so during any observation period related to a conversion of the 4.50% Convertible Senior Notes or following any repurchase of the 4.50% Convertible Senior Notes by us in connection with any fundamental change repurchase date or otherwise). This activity could also cause or avoid an increase or decrease in the market price of Holdings’ common stock.
In addition, if any such Hedge Transactions and Warrants fail to become effective, the Option Counterparties or their respective affiliates may unwind their hedge positions with respect to Holdings’ common stock, which could adversely affect the market price of its common stock. The potential effect, if any, of these transactions and activities on the market price of Holdings’ common stock will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of Holdings’ common stock.
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Holdings is subject to counterparty risk with respect to the 4.50% Convertible Senior Notes Hedge Transactions.
The Option Counterparties are financial institutions or affiliates of financial institutions, and Holdings will be subject to the risk that one or more of such Option Counterparties may default under the Hedge Transactions. Holdings’ exposure to the credit risk of the Option Counterparties will not be secured by any collateral. If any Option Counterparty becomes subject to insolvency proceedings, Holdings will become an unsecured creditor in those proceedings with a claim equal to its exposure at that time under its transactions with that counterparty. Holdings’ exposure will depend on many factors but, generally, the increase in Holdings’ exposure will be correlated to the increase in Holdings’ common stock market price and the volatility of the market price of Holdings’ common stock. In addition, upon a default by the Option Counterparty, Holdings may suffer adverse tax consequences and more dilution than it currently anticipates with respect to its common stock. Holdings can provide no assurance as to the financial stability or viability of any Option Counterparty.
A credit market crisis may adversely affect our ability to raise capital and may materially impact our operations.
Severe dislocations and liquidity disruptions in the credit markets could materially impact our ability to obtain debt financing on reasonable terms or at all. The inability to access debt financing on reasonable terms could materially impact our ability to make acquisitions, invest in technology innovations or significantly expand our business in the future.
Holdings’ ability to pay dividends may be limited or otherwise restricted.
Holdings’ ability to pay dividends is limited by its status as a holding company and the terms of CUSA’s senior notes indentures and CUSA’s senior secured credit facility, which restrict Holdings’ ability to pay dividends and the ability of certain of its subsidiaries to pay dividends, directly or indirectly, to Holdings. Under CUSA’s debt instruments, we may pay a cash dividend up to a specified amount, provided we have satisfied certain financial covenants in, and are not in default under, CUSA’s debt instruments. The declaration of future dividends on Holdings’ common stock, par value $0.001 per share, or Common Stock, will be at the discretion of Holdings’ board of directors and will depend upon many factors, including our results of operations, cash flows, financial condition, earnings, capital requirements, limitations in CUSA’s debt agreements and legal requirements. Holdings suspended its dividend in March 2020 due to the impacts of the COVID-19 pandemic and it is uncertain when Holdings will resume paying dividends.
Future sales of Holdings’ common stock may adversely affect the prevailing market price.
Future sales of substantial amounts of Holdings’ common stock in the open market and the issuance of the shares reserved for potential future issuance under Holdings’ incentive plan, in exchange for outstanding warrants, conversion of outstanding 4.50% Convertible Senior Notes, or in connection with acquisitions or other corporate events, will be dilutive to Holdings’ existing stockholders and could result in a decrease in Holdings’ stock price. Holdings cannot predict whether substantial amounts of its common stock will be sold in the open market in anticipation of, or following, any divestiture by any of its large stockholders, its directors or executive officers of their shares of common stock. Holdings can also issue shares of its common stock which are authorized but unissued and not reserved for any specific purpose without any action or approval by its stockholders.
We may not be able to generate additional revenue or continue to realize value from our investment in NCMI.
As of December 31, 2023, we owned 4.4 million shares of National Cinemedia, Inc. (“NCMI”), which represented an ownership interest in NCM of approximately 4.5%. NCMI is a holding company that serves as the sole manager of NCM. NCM comprises approximately the entire balance of NCMI’s assets, liabilities and operating cash flows. CUSA receives monthly theatre access and advertising fees under an Exhibitor Services Agreement with NCM, and CUSA is entitled to receive quarterly distributions of excess cash from NCM pursuant to NCM’s operating agreement. During the years ended December 31, 2021, 2022 and 2023, Holdings and CUSA each recorded approximately $44.1 million, $52.2 million and $53.3 million in other revenue related to NCM, respectively, and $0.3 million, $0 million and $0 million in cash distributions, respectively. On April 11, 2023, NCM filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code. NCMI continued to manage NCM, the “debtor in possession,” under the jurisdiction of the bankruptcy court and in accordance with the applicable bankruptcy laws and orders of the bankruptcy court. In general, as debtor in possession under the Bankruptcy Code, NCM was authorized to continue to operate as an ongoing business but could not engage in transactions outside the ordinary course of business without the prior approval of the bankruptcy court. On August 3, 2023, NCMI announced that it had effected a 1-for-10 reverse stock split of its common stock. NCMI’s common stock automatically began trading
16
on a split adjusted basis at the opening of the market on August 4, 2023. After giving effect to the reverse stock split, the Company owns approximately 4.4 million shares of NCMI common stock. NCM emerged from bankruptcy on August 7, 2023, and the Company’s ownership interest in NCMI was reduced to less than 5%. Distributions of excess cash from NCM to its members, including NCMI, were restricted through December 2023 in accordance with the credit agreement amendment NCM entered into with its lenders and as a result of their bankruptcy filing. NCMI also suspended its dividend.
Cinema advertising is a small component of the U.S. advertising market and therefore, NCM competes with larger, more established and well-known media platforms such as broadcast radio and television, cable and satellite television, outdoor advertising and Internet portals. In-theatre advertising may not continue to attract advertisers or NCM’s in-theatre advertising format may not continue to be received favorably by theatre patrons. If NCM is unable to continue to generate consistent advertising revenue, its results of operations may be adversely affected and our investment in NCM may be adversely impacted. Since NCM's revenues are primarily dependent on theatre attendance, future NCM revenues and future dividends from NCMI will depend on the continued recovery of the motion picture exhibition industry.
Regulatory Risks
We are subject to various government regulations which could result in substantial costs.
We are subject to various federal, state and local laws, regulations and administrative practices in the U.S. and internationally. We must comply with laws regulating, among other things, antitrust activities, employment environment, sale of concession goods, alcoholic beverages, data protection and privacy and Title III of the Americans with Disabilities Act of 1990 ("ADA") and similar state disability rights laws. Compliance with the ADA and similar disability rights laws requires us as a public accommodation to reasonably accommodate individuals with disabilities. This applies to the construction of new theatres, certain renovations, existing theatres, websites and mobile applications and presentations for the blind, deaf and hard of hearing. Changes in existing laws, regulations or administrative practices or new laws, regulations or administrative practices could have a significant impact on our business.
We may face data protection, data security, and privacy risks in connection with privacy regulation.
Strict data privacy laws regulating the collection, transmission, storage and use of employee data and consumers’ personally identifying information are evolving in the U.S. and other jurisdictions in which we operate. These laws impose compliance obligations for the collection, use, retention, security, processing, transfer and deletion of personally identifiable information of individuals and creates enhanced rights for individuals. These changes in the legal and regulatory environments in the areas of customer and employee privacy, data security, and cross-border data flows could have a material adverse effect on our business, primarily through the impairment of our marketing and transaction processing activities, the limitation on the types of information that we may collect, process and retain, the resulting costs of complying with such legal and regulatory requirements and potential monetary forfeitures and penalties for noncompliance.
We may be subject to increased labor and benefits costs.
In the U.S., we are subject to United States federal and state laws governing such matters as minimum wages, working conditions and overtime. We are also subject to union regulations in certain of our international markets, which can specify wage rates as well as minimum hours to be paid to certain employees. As federal and state minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees, but also the wages paid to employees at wage rates that are above minimum wage. Labor market conditions have also recently driven increases in wages across our labor base and similar increases may continue in the future. Labor shortages, increased employee turnover and health care mandates could also increase our labor costs. This in turn could lead us to increase prices, which could impact our sales. Conversely, if competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our results of operations may be adversely impacted.
17
Provisions in Holdings’ corporate documents and certain of CUSA’s agreements, as well as Delaware law, may hinder a change of control.
Provisions in the Holdings amended and restated certificate of incorporation and bylaws, as well as provisions of the Delaware General Corporation Law, could discourage unsolicited proposals to acquire us. These provisions include:
Certain provisions of CUSA’s 8.75% secured notes indenture, 5.25% senior notes indenture, CUSA’s 5.875% senior notes indenture and CUSA’s senior secured credit facility may have the effect of delaying or preventing future transactions involving a “change of control.” A “change of control” would require us to make an offer to the holders of each of its 8.75% Secured Notes, 5.25% Senior Notes and 5.875% Senior Notes to repurchase all of the outstanding notes at a purchase price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest to the date of purchase. A “change of control” would also be an event of default under CUSA’s senior secured credit facility.
Risks Related to Information Security and Business Disruptions
An information security incident, including a cyber security breach, and our failure to protect our electronically stored data could adversely affect our business or reputation.
We collect, use, store and maintain electronic information and data necessary to conduct our business, including confidential and proprietary information of the company, our customers, and our employees. We also rely on the availability of information technology systems to operate our business, including for communications, receiving and displaying movies, ticketing, guest services, payments, and other general operations. We rely on some of our vendors to store and process certain data and to manage, host, and/or provide some of our information technology systems. Because of the scope and complexity of our information technology systems, our reliance on vendors to provide, support and protect our systems and data, and the constantly evolving cyber-threat landscape, our information technology systems are subject to the risk of disruption, failure, unauthorized access, cyber-terrorism, human error, misuse, tampering, theft, and other cyber-attacks. These or similar events, whether accidental or intentional, could result in theft, unauthorized access or disclosure, loss, fraudulent or unlawful use of customer, employee or company data, which could harm our reputation or result in a loss of business, as well as remedial and other costs, fines, investigations, enforcement actions or lawsuits. These or similar events could also lead to an interruption in the operation of our systems resulting in business impact, including loss of business. These same factors could also affect our ability to adapt to and comply with changing regulations and contractual obligations applicable to data security and privacy, which are increasingly demanding, both in the United States and in other jurisdictions where we operate. In order to address these risks, we have adopted security measures and technology, operate a security program, and work continuously to evaluate and improve our security posture. However, the development and maintenance of these systems and programs are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. As such, there can be no assurance that these or similar events will not occur in the future or will not have an adverse effect on our business and results of operations.
In addition to Company-specific cyber threats or events, our business and results of operations could also be impacted by cyber-related events affecting our peers and partners within the entertainment industry, as well as other retail companies. We maintain insurance designed to provide coverage for cyber risks related to what we believe to be adequate and collectible insurance in the event of the theft, loss, fraudulent or unlawful use of customer, employee or company data, but the foregoing events or future events could result in costs and business impacts which may not be covered or may be in excess of any available insurance that we may have procured. As a result, future events could have a material impact on our business and adversely affect our financial condition and results of operations.
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Other General Risks
A failure to adapt to future technological innovations could impact our ability to compete effectively and could adversely affect our results of operations.
While we continue to invest in technological innovations, such as laser projectors and motion seats, new technological innovations continue to impact our industry. If we are unable to respond to or invest in changes in technology and the technological preferences of our customers, we may not be able to compete with other exhibitors or other entertainment venues, which could adversely affect our results of operations.
Legislative or regulatory initiatives related to global warming/climate change concerns may negatively impact our business.
Recently, there has been an increasing focus and continuous debate on global climate change including increased attention from regulatory agencies and legislative bodies. This increased focus may lead to new initiatives directed at regulating an as-yet unspecified array of environmental matters. Legislative, regulatory or other efforts in the U.S. to combat climate change could result in future increases in the cost of raw materials, taxes, transportation and utilities for our vendors and for us which would result in higher operating costs for the Company. Also, compliance of our theatres and accompanying real estate with new and revised environmental, zoning, land-use or building codes, laws, rules or regulations, could have a material and adverse effect on our business. However, we are unable to predict at this time, the potential effects, if any, that any future environmental initiatives may have on our business.
We may be subject to liability under environmental laws and regulations.
We own and operate a large number of theatres and other properties within the U.S. and internationally, which may be subject to various foreign, federal, state and local laws and regulations relating to the protection of the environment or human health. Such environmental laws and regulations include those that impose liability for the investigation and remediation of spills or releases of hazardous materials. We may incur such liability, including for any currently or formerly owned, leased or operated property, or for any site, to which we may have disposed, or arranged for the disposal of, hazardous materials or wastes. Certain of these laws and regulations may impose liability, including joint and several liability, which can result in a liable party being obliged to pay for greater than its share, regardless of fault or the legality of the original disposal. Environmental conditions relating to our properties or operations could have an adverse effect on our business and results of operations and cash flows.
Product recalls and associated costs could adversely affect our reputation and financial condition.
We may be found liable if the consumption of any of the products we sell causes illness or injury. We are also subject to recall by product manufacturers or if the food products become contaminated. Recalls could result in losses due to the cost of the recall, the destruction of the product and lost sales due to the unavailability of the product for a period of time.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy. The Company has developed an information security program to address material risks from cybersecurity threats. The program includes policies and procedures that identify how security measures and controls are developed, implemented, and maintained. Risk-based analysis and judgment, along with a recognized security framework, are used to select security controls to address risks. During this process, the following factors, among others, are considered: likelihood and severity of risk, impact on the Company and others if a risk materializes, feasibility and cost of controls, and impact of controls on operations and others. Specific controls that are used to some extent include endpoint threat detection and response (EDR), identity and access management (IAM), privileged access management (PAM), logging and monitoring involving the use of security information and event management (SIEM), multi-factor authentication (MFA), firewalls and intrusion detection and prevention, and vulnerability and patch management.
Third-party security firms are used in different capacities to provide or operate some of these controls and technology systems, including cloud-based platforms and services, as well as a security operations center. For example, third parties are used to conduct assessments, such as vulnerability scans and penetration testing. The
19
Company uses a variety of processes to address cybersecurity threats related to the use of third-party technology and services, including pre-acquisition diligence, imposition of contractual obligations, and performance monitoring.
The Company has a written incident response plan and conducts tabletop exercises to enhance incident response preparedness. Business continuity and disaster recovery plans are used to prepare for the potential for a disruption in technology we rely on. The Company is a member of an industry cybersecurity intelligence and risk sharing organization. Employees undergo security awareness training when hired and annually. The Company (or third parties it relies on) may not be able to fully, continuously, and effectively implement security controls as intended. As described above, we utilize a risk-based approach and judgment to determine the security controls to implement, and it is possible we may not implement appropriate controls if we do not recognize or underestimate a particular risk. In addition, security controls, no matter how well designed or implemented, may only mitigate and not fully eliminate risks. And events, when detected by security tools or third parties, may not always be immediately understood or acted upon.
Additionally, in Item 1A Risk Factors, under the heading of Risk Related to Information Security and Business Disruptions, forward-looking cybersecurity threats that could have a material impact on the Company are discussed. Those sections of Item 1A Risk Factors should be read in conjunction with this Item 1C Cybersecurity.
Governance. The Chief Technology Officer (CTO) is the management position with primary responsibility for the development, operation, and maintenance of our information security program. The Company’s CTO, Doug Fay, has served as the Chief Technology Officer & Sr. Vice President for Cinemark since August 2006. Mr. Fay has a background in software engineering and application architecture and has worked in the information technology field since the early 1990s. The CTO routinely reviews risks and security measures and meets monthly with the general counsel, CFO, and Global Controller to review security measures and risks. Oversight of the information security program at the Board level sits with Audit Committee. Presentations regarding security measures and risks to the Audit Committee occur semi-annually. The Company’s incident response plan defines the process for escalating incidents based on level of severity to the management team and Audit Committee.
Item 2. Properties
The following table sets forth a summary of our theatres in U.S. and international markets as of December 31, 2023:
|
|
Leased |
|
|
Owned |
|
||
Segment |
|
Theatres |
|
|
Theatres |
|
||
U.S. |
|
|
269 |
|
|
|
40 |
|
International |
|
|
192 |
|
|
|
— |
|
Total |
|
|
461 |
|
|
|
40 |
|
See also Item 1, Business – Theatre Operations, for a summary of the geographic locations for our U.S. and international theatre circuit as of December 31, 2023.
The Company conducts a significant part of its theatre operations in leased properties under noncancelable operating and finance leases with base terms generally ranging from 10 to 25 years. In addition to fixed lease payments, some of the leases provide for variable lease payments and some require the payment of taxes, insurance, common area maintenance and other costs applicable to the property. Variable lease payments include payments based on a percentage of sales over defined thresholds. Other variable lease payments include payments adjusted periodically for inflation, changes in attendance or changes in average ticket price. The Company can renew, at its option, many of its leases at defined or then market rental rates for various renewal periods. Some leases also provide for escalating rent payments throughout the lease term. See Note 4 to the consolidated financial statements for further discussion of our leases.
In addition to our theatre properties, we currently own an office building in Plano, Texas, which is our global headquarters. We lease office space in Frisco, Texas and a warehouse in McKinney, Texas. We also lease office space in seven regions in Latin America for our local office teams.
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Item 3. Legal Proceedings
For a discussion of contingencies related to legal proceedings, see Note 21 to the consolidated financial statements, which is hereby incorporated by reference.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders of Common Stock
Holdings’ common equity consists of common stock, which has traded on the New York Stock Exchange since April 24, 2007 under the symbol “CNK.”
As of December 31, 2023, there were approximately 570 holders of record of Holdings’ common stock and there were no other classes of stock issued and outstanding.
Dividend Policy
Holdings, at the discretion of its board of directors and subject to applicable law, may pay regular quarterly dividends on its common stock. The amount, if any, of the dividends to be paid in the future will depend upon our then available cash, anticipated cash needs, overall financial condition, debt agreement restrictions, forecasted earnings and cash flows, as well as other relevant factors. In March 2020, the Holdings board of directors suspended its dividend in response to the impacts of the COVID-19 pandemic. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources – Financing Activities for a discussion of dividend restrictions under CUSA’s debt agreements.
CUSA did not pay any cash dividends to Holdings during the years ended December 31, 2021, 2022 and 2023. CUSA’s ability to pay dividends is limited by the terms of its senior notes indentures and its senior secured credit facility, which restrict its ability to pay dividends and the ability of its subsidiaries to pay dividends. See Note 14 to the consolidated financial statements for further discussion of our debt agreements. The declaration of future dividends will depend upon many factors, including CUSA’s results of operations, financial condition, earnings, capital requirements, limitations in our debt agreements and legal requirements.
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Performance Graph
We benchmark our financial performance against AMC Entertainment Holdings, Inc. (AMC) and IMAX Corporation (IMAX), the two other publicly-held companies in our industry with whom we compete for investor capital. The performance graph below sets forth the cumulative total shareholder return (assuming reinvestment of dividends) to Holdings’ stockholders during the five-year period ended December 31, 2023, as well as the corresponding returns on the S&P 500 Index and in each of AMC and IMAX. Holdings’ stock price performance shown in the graph below may not be indicative of future stock performance.
Purchases of Equity Securities
In the fourth quarter of 2023, Holdings purchased shares of its common stock as follows:
|
|
Total Number of Shares Purchased (1) |
|
Average Price Paid per Share |
|
Total Number of Shares Purchased As Part of Publicly Announced Plans |
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plan |
|
||||
October 1 through October 31 |
|
|
— |
|
$ |
— |
|
|
— |
|
|
— |
|
November 1 through November 30 |
|
|
17.90 |
|
$ |
15.42 |
|
|
— |
|
|
— |
|
December 1 through December 31 |
|
|
9.53 |
|
$ |
14.09 |
|
|
— |
|
|
— |
|
Total |
|
|
27.43 |
|
|
|
|
— |
|
|
— |
|
|
(1) Represents shares of Holdings’ common stock (in thousands) repurchased by withholding shares in October, November and December of 2023 to satisfy employee tax-withholding obligations upon vesting in restricted stock and performance stock units. See Note 18 to the consolidated financial statements.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cinemark Holdings, Inc. is a holding company and its wholly-owned subsidiary is Cinemark USA, Inc. Holdings consolidates CUSA and its subsidiaries for financial statement purposes, and CUSA comprises approximately the entire balance of Holdings’ assets, liabilities and operating cash flows. In addition, CUSA’s operating revenue and operating expenses comprise nearly 100% of Holdings’ revenue and operating expenses. As such, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) that follows is for Holdings and CUSA in all material respects, unless otherwise noted. Differences between the operations and results of Holdings and CUSA are separately disclosed and explained. Where it is important to distinguish between the entities, we either refer specifically to Holdings or CUSA. Otherwise, all references to “we,” “our,” “us,” “the Company” or “Cinemark” relate to Cinemark Holdings, Inc. and its consolidated subsidiaries and all references to CUSA relate to CUSA and its consolidated subsidiaries.
The following discussion and analysis should be read in conjunction with the financial statements and accompanying notes included in this report. This discussion may contain forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties and risks associated with these statements. Discussion regarding our financial condition and results of operations for 2022 compared with 2021 is included in Item 7 of the Company’s 2022 Annual Report on Form 10-K filed on February 24, 2023.
Overview
We are a leader in the motion picture exhibition industry, with theatres in the U.S., Brazil, Argentina, Chile, Colombia, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, and Paraguay. As of December 31, 2023, we managed our business under two reportable operating segments – U.S. markets and international markets. See Note 22 to the consolidated financial statements.
Impact of COVID-19 Pandemic
The impact of the COVID-19 pandemic had an unprecedented effect on the theatrical exhibition industry. We temporarily closed our theatres in the U.S. and Latin America during March of 2020 at the onset of the COVID-19 outbreak. We reopened theatres as soon as local restrictions and the status of the COVID-19 pandemic would allow. All of our domestic and international theatres were reopened by the end of 2021. After reopening our theatres, we faced ongoing challenges with the significant reduction in the volume of new film releases. The industry has made significant progress in its recovery from the COVID-19 pandemic; however its ongoing recovery continues to be contingent upon several key factors, including the volume of new film content available, which has also been impacted by the recent writers’ and actors’ guild strikes, the box office performance of new film content released, the duration of the exclusive theatrical release window and evolving consumer behavior with competition from other forms of in-and-out of home entertainment.
Revenue and Expenses
We generate revenue primarily from filmed entertainment box office receipts and concession sales, with additional revenue from screen advertising, screen rental and other revenue streams, such as transactional fees, vendor marketing promotions, studio trailer placements, meeting rentals and electronic video games located in some of our theatres. We also offer alternative entertainment, such as the Metropolitan Opera, concert events, live and pre-recorded sports programs and other special events in our theatres. NCM provides our domestic theatres with various forms of in-theatre advertising. Our Flix Media subsidiaries provide screen advertising and alternative content for our international circuit and other international exhibitors.
Films released during the year ended December 31, 2023 included Barbie, The Super Mario Bros. Movie, Spider-Man: Across the Spider-Verse, Guardians of the Galaxy Vol. 3, Oppenheimer, The Little Mermaid, Ant-Man and the Wasp: Quantumania, John Wick: Chapter 4, Sound of Freedom, Taylor Swift | The Eras Tour concert film, The Hunger Games: The Ballad of Songbirds and Snakes, Five Nights at Freddy’s, Wonka, and Trolls Band Together, among other films.
Films scheduled for release in 2024 include Madame Web, Dune: Part Two, Ghostbusters: Frozen Empire, Kung Fu Panda 4, The Fall Guy, Furiosa, Kingdom of the Planet of the Apes, Inside Out 2, A Quiet Place: Day One,
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Despicable Me 4, Deadpool 3, Joker: Folie à Deux, Venom 3, Wicked - Part I, Mufusa: The Lion King, and Sonic the Hedgehog 3, among other films.
Film rental costs are variable in nature and fluctuate with our admissions revenue. Film rental costs as a percentage of revenue are generally higher for periods in which more blockbuster films are released. The Company previously received virtual print fees (VPFs) from studios for certain of its international locations, which were included as a contra-expense in film rental and advertising costs on the consolidated statements of income. However, these costs were fully recovered during 2021, and as a result, were not received during 2022 and 2023 and will not be received in future periods. Advertising costs, which are expensed as incurred, are primarily related to expanding our reach to our guests, keeping Cinemark elevated in the moviegoer consideration set and growing loyalty. These expenses vary depending on the timing and length of such campaigns.
Concession supplies expense is variable in nature and fluctuates with our concession revenue and also product mix. Inflationary pressures, and to a lesser extent supply chain interruptions, have impacted, and may continue to impact, product costs and product availability. We source products from a variety of partners around the world to minimize supply chain interruptions and cost pressures, wherever possible.
Although salaries and wages include a fixed cost component (i.e., the minimum staffing costs to operate a theatre facility during non-peak periods), salaries and wages tend to move in relation to revenue as theatre staffing is adjusted to respond to changes in attendance. Staffing levels may vary based on the amenities offered at each location, such as full-service restaurants, bars or expanded food and beverage options. In certain international locations, staffing levels are also subject to local regulations, including minimum hour requirements. Labor market conditions and inflationary pressures have driven increases in wages across our labor base and similar increases may continue in the future.
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment. Certain leases are subject to percentage rent only, while others are subject to percentage rent in addition to their fixed monthly rent if a target annual performance level is achieved.
Utilities and other costs include both fixed and variable costs and primarily consist of utilities, property taxes, janitorial costs, credit card transaction fees, third party ticket sales commissions, repairs and maintenance expenses, security services and projection and sound equipment maintenance expenses.
General and administrative expenses to support the overall management of the Company are primarily fixed in nature with certain variable components. Fixed expenses include salaries, wages and benefits costs for our corporate office personnel, facility expenses for our corporate and other offices, software license and maintenance costs and audit fees. Some variable expenses may include incentive compensation, consulting and legal fees, supplies and other costs that are not specifically associated with the operations of our theatres.
Critical Accounting Policies and Estimates
Holdings and CUSA each prepare their consolidated financial statements in conformity with generally accepted accounting principles in the U.S., or U.S. GAAP. As such, Holdings and CUSA are each required to make certain estimates and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies and estimates, which we believe are the most critical to aid in fully understanding and evaluating Holdings’ and CUSA’s reported consolidated financial results, include the following:
Revenue and Expense Recognition
Our patrons have the option to purchase movie tickets well in advance of a movie showtime, right before the movie showtime, or at any point in between those two timeframes depending on seat availability. We recognize such admissions revenue when the showtime for a purchased movie ticket has passed. Concession revenue is recognized when products are sold to the consumer, or if purchased in advance, once the showtime associated with the customer’s movie ticket has passed. Other revenue primarily consists of screen advertising, screen rental revenue, promotional income, studio trailer placements, revenue from electronic video games located in our theatres, and transactional fees. Except for NCM screen advertising advances (see Note 9 to the consolidated financial statements), these revenues are generally recognized when we have fulfilled our performance obligations by providing the specified services.
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We sell gift cards and discount ticket vouchers, the proceeds from which are recorded as deferred revenue. Deferred revenue for gift cards and discount ticket vouchers is recognized when they are redeemed for concession items or, if redeemed for movie tickets, when the showtime has passed. We generally record breakage revenue on gift cards and discount ticket vouchers based on redemption activity and historical experience with unused balances.
We offer a subscription program in the U.S. whereby patrons can pay a monthly or annual fee to receive a monthly credit for use towards a future movie ticket purchase. We also offer monthly subscription fee programs in several of our international locations where customers can pay a monthly fee to receive benefits such as a free monthly ticket. We record the subscription program fees as deferred revenue and record admissions revenue when the showtime for a movie ticket purchased with a credit has passed.
We have loyalty programs in the U.S. and many of our international locations that either have a prepaid annual fee or award points to customers as purchases are made. For those loyalty programs that have a prepaid annual fee, we recognize the fee collected as other revenue on a straight-line basis over the annual membership period. For those loyalty programs that award points to customers based on their purchases, we record a portion of the original transaction proceeds as deferred revenue based on the number of reward points issued to customers and recognize the deferred revenue when the customer redeems such points. The value of loyalty points issued is based on the estimated fair value of the rewards offered. We record breakage revenue on deferred loyalty and subscription revenue generally upon the expiration of loyalty points and subscription credits, respectively, as we do not yet have sufficient historical data related to the redemption patterns of these programs to estimate breakage.
Film rental costs are based on the film licensing arrangements and accrued based on the applicable box office receipts and either; 1) a sliding scale formula, which is generally established prior to the opening of the film, 2) a firm terms formula as negotiated prior to a film’s theatrical run or 3) estimates of the final settlement rate, which occurs at the conclusion of the film’s run. Under a sliding scale formula, we pay a percentage of box office revenues using a pre-determined scale that is based upon box office performance of the film for its full theatrical run. Under a firm terms formula, we pay the distributor a percentage of box office receipts that can either be an aggregate rate for the full theatrical run or rates that decline over the term of the theatrical run. The settlement process allows for negotiation of film rental fees upon the conclusion of the film's theatrical run based upon how the film performs. Estimates are based on the expected success of a film. The success of a film can generally be determined a few weeks after a film is released when the initial box office performance of the film is known. If actual settlements are different than those estimates, film rental cost estimates are adjusted at that time.
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment. Certain of our leases are subject to monthly percentage rent only, which is accrued each month based on actual revenues. Certain of our other theatres require payment of percentage rent in addition to fixed monthly rent if an annual target revenue level is achieved. Percentage rent expense for these annual payments is estimated and recorded for these theatres on a monthly basis if the theatre’s historical performance or forecasted performance indicates that the annual target revenue level will be reached. Once actual annual percentage rent is determinable, the timing of which is based on the respective lease agreement, percentage rent expense estimates are adjusted at that time.
Theatre properties and equipment are depreciated using the straight-line method over their estimated useful lives. In estimating the useful lives of our theatre properties and equipment, we have relied upon our experience with such assets and our historical replacement period. We periodically evaluate these estimates and assumptions and adjust them as necessary. Leasehold improvements for which we pay, and to which we have title, are amortized over the lesser of their useful life or the remaining initial lease term.
Long-Lived Assets Impairment Evaluations
We review long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. We also perform a full quantitative impairment evaluation on an annual basis. We assess many factors to determine whether to impair individual theatre assets, including the following:
26
Long-lived assets are evaluated for impairment on a theatre level, which we believe is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the theatre’s useful life correlates with the remaining lease period, which may include the probability of the exercise of available renewal periods for leased properties, and the lesser of twenty years or the building’s remaining useful life for owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, we then compare the carrying value of the asset group (theatre) with its estimated fair value. When estimated fair value is determined to be lower than the carrying value of the asset group (theatre), the asset group (theatre) is written down to its estimated fair value. Significant judgment is involved in estimating cash flows and fair value. Fair value is determined based on a multiple of cash flows. 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, are based on historical and projected operating performance, recent market transactions and current industry trading multiples.
See further discussion of our impairment evaluation policy in Note 1 of the consolidated financial statements. See a summary of the impairment charges recorded during the years ended December 31, 2021, 2022 and 2023 in Note 12 to the consolidated financial statements.
Goodwill and Intangible Assets Impairment Evaluations
We evaluate 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. We evaluate goodwill for impairment at the reporting unit level, which is the U.S. and each of our international countries that has been allocated goodwill (we do not have goodwill recorded for all of our international locations). Under our quantitative goodwill impairment analysis, we estimate the fair value of each reporting unit and compare that to its carrying value. Fair value is estimated using (i) a market approach, which considers a multiple of cash flows for each reporting unit based upon public trading and recent transaction valuation multiples as the basis for fair value and (ii) an income approach, which uses a discounted cash flow model incorporating discount rates commensurate with the risks involved as the basis for fair value. Significant judgment including management’s estimate of future theatre level cash flows for each theatre is involved in estimating the fair value of a reporting unit. Our 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, recent market transactions and current industry trading multiples. Under ASC Topic 350, Goodwill, Intangibles and Other, we may perform a qualitative impairment assessment or a quantitative impairment assessment of our goodwill.
Tradename intangible assets are tested for impairment at least annually as of November 30th or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. Under ASC Topic 350, we can elect to perform a qualitative or quantitative impairment assessment for our tradename intangible assets. A quantitative tradename impairment assessment includes comparing the carrying values of tradename assets to their estimated fair value. Fair values are estimated by applying an estimated market royalty rate that could be charged for the use of our tradenames to forecasted future revenues, with an adjustment for the present value of such royalties. If the estimated fair value is less than the carrying value, the tradename intangible asset is written down to its estimated fair value. Significant judgment is 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, are based on historical and projected revenue performance and industry trends. The Company’s qualitative assessment considers industry and market conditions and recent developments that may impact the revenue forecasts and other estimates as compared to its most recent quantitative assessment.
See further discussion of our impairment evaluation policy in Note 1 of the consolidated financial statements. See a summary of the impairment charges recorded during the years ended December 31, 2021, 2022 and 2023 in Note 12 to the consolidated financial statements.
27
Income Taxes
CUSA participates in the consolidated return of Holdings; however, CUSA’s provisions for income taxes are computed on a stand-alone basis. We use an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not that such assets will be realized. Income taxes are provided on unremitted earnings from foreign subsidiaries unless such earnings are expected to be indefinitely reinvested. Income taxes have also been provided for potential tax assessments. The evaluation of an uncertain tax position is a two-step process. The first step is recognition: We determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position would be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements result in (1) a change in a liability for income taxes payable or (2) a change in an income tax refund receivable, a deferred tax asset or a deferred tax liability or both (1) and (2). We accrue interest and penalties on uncertain tax positions. See Note 20 to the consolidated financial statements for further discussion of income taxes.
Accounting for Investment in National CineMedia, Inc. and Related Agreements
We have an investment in National CineMedia, Inc., or NCMI. NCMI is a holding company and the sole manager of NCM. NCM operates a digital in-theatre network in the U.S. for providing cinema advertising. NCM comprises approximately the entire balance of NCMI’s assets, liabilities and operating cash flows. The Company entered into an Exhibitor Services Agreement, or ESA, with NCM pursuant to which NCM primarily provides screen advertising to its domestic theatres. On February 13, 2007, NCMI 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 million in cash consideration from NCM. The proceeds were recorded as deferred revenue, or NCM screen advertising advances, and are being amortized over the term of the amended and restated ESA, which expires in February 2041.
The Company also periodically receives consideration in the form of common unit adjustments from NCM. Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCMI and the Company, referred to as the Founding Members, we receive annual adjustments to the common membership units primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by us. The common units received are recorded at estimated fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue or NCM screen advertising advances. The fair value of the common units received is estimated based on the market price of NCMI common stock (Level 1 input as defined in FASB ASC Topic 820, Fair Value Measurement) at the time the common units are determined, adjusted for volatility associated with the estimated time period it would take to convert the common units and register the respective shares. The recognition of revenue related to the NCM screen advertising advances is being recognized on a straight-line basis over the term of the amended and restated ESA through February 2041.
On April 11, 2023, NCM filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code. NCMI continued to manage NCM as the “debtor in possession,” under the jurisdiction of the bankruptcy court and in accordance with the applicable bankruptcy laws and orders of the bankruptcy court. In general, as debtor in possession under the Bankruptcy Code, NCM was authorized to continue to operate as an ongoing business but could not engage in transactions outside the ordinary course of business without the prior approval of the bankruptcy court. Due to NCM’s bankruptcy proceedings, we reassessed our rights and level of influence over NCM. We determined that effective April 11, 2023, the date NCM filed its bankruptcy petition, we no longer had significant influence over NCM and therefore ceased accounting for our investment in NCMI under the equity method of accounting in the second quarter of 2023. Effective April 11, 2023, we started to account for our investment in NCMI in accordance with the guidance set forth in FASB ASC Topic 321 Investments - Equity Securities, which requires us to measure our
28
investment in common stock of NCMI at fair value and recognize unrealized holding gains and losses on our investment in earnings.
Through April 11, 2023, we accounted for our investment in NCMI under the equity method of accounting, and therefore evaluated our investment in NCMI/NCM for impairment that is other than temporary on a quarterly basis or whenever events or changes in circumstances indicated the current value of the investment may be less than its carrying value. Under ASC Topic 323, Investments - Equity Method and Joint Ventures, a loss in value of an investment that is other than a temporary decline should be recognized. Factors that are considered in evaluating whether a decline in the value of an investment is other than temporary include a severe and sustained decline in the quoted market price of an investment below the carrying value of the investment, or specific events that may adversely influence the operations of the investee in a permanent or irreversible manner. We evaluated our investment in NCMI for impairment on April 11, 2023, the date NCM filed for bankruptcy, and we did not find any indication of impairment as the share price of NCMI was above the carrying value of our investment in NCMI.
On August 3, 2023, NCMI announced that it had effected a 1-for-10 reverse stock split of its common stock. NCMI’s common stock automatically began trading on a split adjusted basis at the opening of the market on August 4, 2023. After giving effect to the reverse stock split, the Company owns approximately 4.4 million shares of NCMI common stock. NCM emerged from bankruptcy on August 7, 2023, and the Company’s ownership interest in NCMI was reduced to less than 5%. The Company no longer has the right to designate two board members to the NCMI board of directors.
See Note 9 to the consolidated financial statements for further discussion of our investment in NCMI and the related accounting.
29
Results of Operations
The following table sets forth, for the periods indicated, the amounts for certain items reflected in operating (loss) income of Holdings along with each of those items as a percentage of revenue.
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Operating data (in millions): |
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
|
|
|
|
|
|
|
|
|||
Admissions |
|
$ |
780.0 |
|
|
$ |
1,246.9 |
|
|
$ |
1,555.6 |
|
Concession |
|
|
561.7 |
|
|
|
938.3 |
|
|
|
1,192.0 |
|
Other |
|
|
168.8 |
|
|
|
269.5 |
|
|
|
319.1 |
|
Total revenue |
|
$ |
1,510.5 |
|
|
$ |
2,454.7 |
|
|
$ |
3,066.7 |
|
Cost of operations (1) |
|
|
|
|
|
|
|
|
|
|||
Film rentals and advertising |
|
|
415.0 |
|
|
|
704.4 |
|
|
|
865.7 |
|
Concession supplies |
|
|
97.9 |
|
|
|
169.3 |
|
|
|
221.3 |
|
Salaries and wages |
|
|
232.9 |
|
|
|
372.7 |
|
|
|
403.1 |
|
Facility lease expense |
|
|
280.0 |
|
|
|
308.3 |
|
|
|
329.7 |
|
Utilities and other |
|
|
282.9 |
|
|
|
407.2 |
|
|
|
466.8 |
|
General and administrative expenses |
|
|
161.1 |
|
|
|
177.6 |
|
|
|
198.8 |
|
Depreciation and amortization |
|
|
265.4 |
|
|
|
238.2 |
|
|
|
209.5 |
|
Impairment of long-lived assets |
|
|
20.8 |
|
|
|
174.1 |
|
|
|
16.6 |
|
Restructuring costs |
|
|
(1.0 |
) |
|
|
(0.5 |
) |
|
|
— |
|
Loss (gain) on disposal of assets and other |
|
|
8.0 |
|
|
|
(6.8 |
) |
|
|
(7.7 |
) |
Total cost of operations |
|
|
1,763.0 |
|
|
|
2,544.5 |
|
|
|
2,703.8 |
|
Operating (loss) income |
|
$ |
(252.5 |
) |
|
$ |
(89.8 |
) |
|
$ |
362.9 |
|
|
|
|
|
|
|
|
|
|
|
|||
Operating data as a percentage of total Revenue: |
|
|||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|||
Admissions |
|
|
51.6 |
% |
|
|
50.8 |
% |
|
|
50.7 |
% |
Concession |
|
|
37.2 |
% |
|
|
38.2 |
% |
|
|
38.9 |
% |
Other |
|
|
11.2 |
% |
|
|
11.0 |
% |
|
|
10.4 |
% |
Total revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of operations (2) |
|
|
|
|
|
|
|
|
|
|||
Film rentals and advertising |
|
|
53.2 |
% |
|
|
56.5 |
% |
|
|
55.7 |
% |
Concession supplies |
|
|
17.4 |
% |
|
|
18.0 |
% |
|
|
18.6 |
% |
Salaries and wages |
|
|
15.4 |
% |
|
|
15.2 |
% |
|
|
13.1 |
% |
Facility lease expense |
|
|
18.5 |
% |
|
|
12.6 |
% |
|
|
10.8 |
% |
Utilities and other |
|
|
18.7 |
% |
|
|
16.6 |
% |
|
|
15.2 |
% |
General and administrative expenses |
|
|
10.7 |
% |
|
|
7.2 |
% |
|
|
6.5 |
% |
Depreciation and amortization |
|
|
17.6 |
% |
|
|
9.7 |
% |
|
|
6.8 |
% |
Impairment of long-lived assets |
|
|
1.4 |
% |
|
|
7.1 |
% |
|
|
0.5 |
% |
Restructuring costs |
|
|
(0.1 |
)% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Loss (gain) on disposal of assets and other |
|
|
0.5 |
% |
|
|
(0.3 |
)% |
|
|
(0.3 |
)% |
Total cost of operations |
|
|
116.7 |
% |
|
|
103.7 |
% |
|
|
88.2 |
% |
Operating (loss) income |
|
|
(16.7 |
)% |
|
|
(3.7 |
)% |
|
|
11.8 |
% |
Average screen count (3) |
|
|
5,890 |
|
|
|
5,849 |
|
|
|
5,803 |
|
Revenue per average screen (in dollars) |
|
$ |
256,445 |
|
|
$ |
419,675 |
|
|
$ |
528,463 |
|
30
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Operating data (in millions): |
|
|
|
|
|
|
|
|
|
|||
Cost of operations |
|
|
|
|
|
|
|
|
|
|||
General and administrative expenses |
|
$ |
158.5 |
|
|
$ |
174.6 |
|
|
$ |
195.5 |
|
Total cost of operations |
|
$ |
1,760.4 |
|
|
$ |
2,541.5 |
|
|
$ |
2,700.5 |
|
Operating (loss) income |
|
$ |
(249.9 |
) |
|
$ |
(86.8 |
) |
|
$ |
366.2 |
|
Comparison of Years Ended December 31, 2023 and December 31, 2022
Year ended December 31, 2022 - The North American Industry box office totaled approximately $7.5 billion during 2022 which included the carryover of Spider-Man: No Way Home and new blockbuster releases such as Top Gun: Maverick, Black Panther: Wakanda Forever, Doctor Strange in the Multiverse of Madness, Avatar: The Way of Water, Jurassic World Dominion, Minions: The Rise of Gru, The Batman, Thor: Love and Thunder, Puss in Boots: The Last Wish and Sonic the Hedgehog 2, among other films.
Year ended December 31, 2023 - The North American Industry box office generated approximately $9.1 billion during 2023, which included the carryover of Avatar: The Way of Water and Puss in Boots: The Last Wish, as well as new blockbuster releases including Barbie, The Super Mario Bros. Movie, Spider-Man: Across the Spider-Verse, Guardians of the Galaxy Vol. 3, Oppenheimer, The Little Mermaid, Ant-Man and the Wasp: Quantumania, John Wick: Chapter 4, Sound of Freedom, Taylor Swift | The Eras Tour concert film, The Hunger Games: The Ballad of Songbirds and Snakes, Five Nights at Freddy’s, Wonka, and Trolls Band Together, among other films.
Revenue. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
|
|
U.S. Operating Segment |
|
International Operating Segment |
|
Consolidated |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constant Currency (3) |
|
|
|
|
|
|
||
|
|
2023 |
|
2022 |
|
% Change |
|
2023 |
|
2022 |
|
% Change |
|
2023 |
|
% Change |
|
2023 |
|
2022 |
|
% Change |
Admissions revenue |
|
$1,236.0 |
|
$1,010.2 |
|
22.4% |
|
$319.6 |
|
$236.7 |
|
35.0% |
|
$393.1 |
|
66.1% |
|
$1,555.6 |
|
$1,246.9 |
|
24.8% |
Concession revenue |
|
952.0 |
|
763.0 |
|
24.8% |
|
240.0 |
|
175.3 |
|
36.9% |
|
296.5 |
|
69.1% |
|
1,192.0 |
|
938.3 |
|
27.0% |
Other revenue (1) |
|
227.3 |
|
197.0 |
|
15.4% |
|
91.8 |
|
72.5 |
|
26.6% |
|
113.9 |
|
57.1% |
|
319.1 |
|
269.5 |
|
18.4% |
Total revenue (1) |
|
$2,415.3 |
|
$1,970.2 |
|
22.6% |
|
$651.4 |
|
$484.5 |
|
34.4% |
|
$803.5 |
|
65.8% |
|
$3,066.7 |
|
$2,454.7 |
|
24.9% |
Attendance |
|
127.7 |
|
109.3 |
|
16.8% |
|
82.1 |
|
63.4 |
|
29.5% |
|
|
|
|
|
209.8 |
|
172.7 |
|
21.5% |
Average ticket price (2) |
|
$9.68 |
|
$9.24 |
|
4.8% |
|
$3.89 |
|
$3.73 |
|
4.3% |
|
$4.79 |
|
28.4% |
|
$7.41 |
|
$7.22 |
|
2.6% |
Concession revenue per patron (2) |
|
$7.45 |
|
$6.98 |
|
6.7% |
|
$2.92 |
|
$2.76 |
|
5.8% |
|
$3.61 |
|
30.8% |
|
$5.68 |
|
$5.43 |
|
4.6% |
31
Cost of Operations. The table below, presented by reportable operating segment, summarizes certain of our theatre operating costs (in millions) for the years ended December 31, 2022 and 2023.
|
|
U.S. Operating Segment |
|
|
International Operating Segment |
|
|
Consolidated |
|
|||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
Constant |
|
|
2023 |
|
|
2022 |
|
|||||||
Film rentals and advertising |
|
$ |
703.6 |
|
|
$ |
584.4 |
|
|
$ |
162.1 |
|
|
$ |
120.0 |
|
|
$ |
202.4 |
|
|
$ |
865.7 |
|
|
$ |
704.4 |
|
Concession supplies |
|
|
169.1 |
|
|
|
130.5 |
|
|
|
52.2 |
|
|
|
38.8 |
|
|
|
64.4 |
|
|
|
221.3 |
|
|
|
169.3 |
|
Salaries and wages |
|
|
333.8 |
|
|
|
314.7 |
|
|
|
69.3 |
|
|
|
58.0 |
|
|
|
88.3 |
|
|
|
403.1 |
|
|
|
372.7 |
|
Facility lease expense |
|
|
246.6 |
|
|
|
250.1 |
|
|
|
83.1 |
|
|
|
58.2 |
|
|
|
95.7 |
|
|
|
329.7 |
|
|
|
308.3 |
|
Utilities and other |
|
|
355.4 |
|
|
|
313.7 |
|
|
|
111.4 |
|
|
|
93.5 |
|
|
|
136.7 |
|
|
|
466.8 |
|
|
|
407.2 |
|
Salaries and wages increased to $333.8 million compared with $314.7 million for 2022 as a result of higher attendance, expanded operating hours and wage rate increases, partially offset by labor productivity initiatives. Facility lease expense, which is primarily fixed in nature, was $246.6 million, essentially flat to 2022. Utilities and other costs increased to $355.4 million, as many of these costs, such as credit card transaction fees, repairs and maintenance, utilities costs, security costs and janitorial costs, are variable in nature and were impacted by attendance growth and inflationary pressures. Higher commissions on gift cards sold by third party retailers also contributed to the increase in utilites and other costs.
Salaries and wages increased to $69.3 million as reported for 2023 due to wage rate increases, higher attendance, and expanded operating hours. Facility lease expense increased 42.8% to $83.1 million as reported due to higher percentage rent driven by increased revenue and the return of certain minimum rent thresholds compared with 2022. Utilities and other costs increased to $111.4 million as reported, as many of these costs, such as credit card fees and other transaction fees, repairs and maintenance, janitorial costs, utilities and screen advertising commissions, are variable in nature and were impacted by the significant increase in attendance for 2023 as well as inflationary impacts. These expenses, as reported, were also impacted by exchange rate fluctuations in each of the countries in which we operate.
General and Administrative Expense. General and administrative expense for Holdings increased to $198.8 million for 2023 compared with $177.6 million for 2022. General and administrative expense attributable to CUSA increased to $195.5 million for 2023 compared with $174.6 million for 2022. The increase for both Holdings and CUSA is primarily due to higher corporate headcount, higher incentive and share-based compensation, wages and benefits inflation, higher property and liability insurance, and a continued shift to cloud-based software, partially offset by lower professional fees.
Depreciation and Amortization. Depreciation and amortization expense decreased to $209.5 million for 2023 from $238.2 million for 2022 primarily due to the impairment of theatre assets during 2022 and 2023.
32
Impairment of Long-Lived Assets. We recorded asset impairment charges of $16.6 million during 2023. Long-lived asset impairment charges of approximately $15.9 million were recorded in 2023, related to certain theatres that are not showing sufficient recovery since reopening after the temporary COVID-19 related closures when compared with the rest of our theatre circuit. In addition, we recorded an impairment of $0.7 million on our investment in NCMI in the first quarter of 2023 as NCMI’s stock price was below the Company’s carrying value of NCM per common unit and due to the prolonged recovery of NCM’s business from the COVID-19 pandemic. We recorded asset impairment charges of $174.1 million during 2022. Long-lived asset impairment charges of $60.9 were recorded in 2022 primarily due to the prolonged recovery of certain theatres from the COVID-19 pandemic, and an impairment of $113.2 million was recorded for our investment in NCM as NCMI’s stock price was significantly below the Company’s carrying value of NCM per common unit and due to the prolonged recovery of NCM’s business from the COVID-19 pandemic. See Notes 9 and 12 to the consolidated financial statements.
Restructuring costs. The credit of $(0.5) million to restructuring costs during 2022 was primarily due to adjustments based on final facility lease payments for certain closed theatres as compared with recorded amounts.
Gain on Disposal of Assets and Other. A gain on disposal of assets and other of $7.7 million was recorded during 2023 compared with a gain of $6.8 million during 2022. Activity for 2023 was primarily related to the sale of our Ecuador subsidiary in September 2023, sale of excess real property, and the write-off of operating lease obligations for theatres that were closed during 2023. Activity for 2022 was primarily related to the sale of excess land parcels. See Note 8 to the consolidated financial statements for further discussion of the sale of our Ecuador subsidiary.
Interest Expense. Interest expense for Holdings, which includes amortization of debt issuance costs and original issue discount and amortization of accumulated losses for swap amendments, decreased to $150.4 million during 2023 compared with $155.3 million for 2022. The interest expense attributable to CUSA, which includes amortization of debt issue costs and original issue discount and amortization of accumulated losses for swap amendments, was $126.3 million during 2023 compared with $131.2 million for 2022. The decrease in interest expense is primarily related to the redemption of $100.0 million in principal amount of the 8.75% Secured Notes during 2023. See further discussion at Liquidity and Capital Resources - Financing Activities below.
Interest Income. Interest income for Holdings was $55.0 million during 2023 compared with $20.4 million for 2022. The interest income attributable to CUSA was $43.2 million during 2023 compared with $16.5 million for 2022. The increase in interest income was primarily due to the impact of higher interest rates earned on higher average cash and cash equivalents balances in 2023.
Loss on Debt Extinguishment and Refinancing. We recorded a loss on extinguishment and refinancing of debt of $10.7 million during 2023 related to the amendment of our Credit Agreement and the partial redemption of the 8.75% Secured Notes, including the write-off of unamortized debt issuance costs and legal and other fees paid. See further discussion at Liquidity and Capital Resources - Financing Activities below.
Foreign Currency Exchange and Other Related Loss. We recorded a foreign currency exchange and other related loss of $28.8 million during 2023 and $11.5 million during 2022. Activity for 2023 includes a $12.4 million loss on Blue Chip Swap transactions. Excluding the loss on Blue Chip Swap transactions, the foreign currency exchange loss is primarily related to currency exchange fluctuations from original transaction dates until cash settlement, See Notes 1 and 16 to the consolidated financial statements for discussion of foreign currency translation and Blue Chip Swap transactions.
Cash Distributions from DCIP. We recorded cash distributions from DCIP of $3.7 million during 2022. These distributions were in excess of the carrying value of our investment in DCIP. DCIP ceased operations in 2022.
Equity in Income (Loss) of Affiliates. Equity in income of affiliates of $3.6 million was recorded during 2023 compared with a loss of $9.3 million during 2022. The equity in income of affiliates for 2023 is due to the ongoing recovery of our equity investees' performance from the effects of the COVID-19 pandemic on the motion picture exhibition industry. See Notes 9 and 10 to the consolidated financial statements for information about our equity investments.
Unrealized Gain on Investment in NCMI. We recorded an unrealized gain on our investment in NCMI of $12.4 million during 2023 related to the mark-to-market adjustment of our investment in NCMI under the fair value basis of accounting. See Note 9 to the consolidated financial statements for information about our investment in NCMI.
Income Taxes - Holdings. An income tax expense of $29.9 million was recorded for 2023 compared with an income tax expense of $3.0 million for 2022. The effective tax rate was approximately 13.5% for 2023 compared with
33
(1.1)% for 2022. The effective tax rate for 2023 was favorably impacted by the use of certain foreign tax credits for which valuation allowances had been established in prior periods as well as the release of valuation allowances previously recorded against the net deferred tax assets in certain foreign jurisdictions. The effective tax rate for 2022 was impacted by the establishment of valuation allowances related to certain deferred tax assets. We have recorded an income tax receivable of $56.7 million at December 31, 2023 and have paid cash taxes of $22.3 million during the year ended December 31, 2023. See Note 20 to the consolidated financial statements for further discussion of income taxes.
Income Taxes - CUSA. An income tax expense of $28.4 million was recorded for 2023 compared with an income tax benefit of $(13.1) million for 2022. The effective tax rate was approximately 12.0% for 2023 compared with 5.4% for 2022. The effective tax rate for 2023 was favorably impacted by the use of certain foreign tax credits for which valuation allowances had been established in prior periods as well as the release of valuation allowances previously recorded against the net deferred tax assets in certain foreign jurisdictions. The effective tax rate for 2022 was impacted by the establishment of valuation allowances related to certain deferred tax assets. We have recorded an income tax receivable of $56.1 million at December 31, 2023 and have paid cash taxes of $22.3 million during the year ended December 31, 2023. See Note 20 to the consolidated financial statements for further discussion of income taxes.
Liquidity and Capital Resources
Operating Activities
We primarily collect our revenue in cash, mainly through box office receipts and the sale of concessions. Our revenue is generally received in cash prior to the payment of related expenses; therefore, we have an operating “float” and historically have not required traditional working capital financing. However, our working capital position will continue to fluctuate based on seasonality, the timing and volume of new film content, the timing of interest payments on our long-term debt as well as timing of payment of other operating expenses that are paid annually or semi-annually, such as property and other taxes and incentive bonuses. We believe our existing cash and expected cash flows from operations will be sufficient to meet our working capital, capital expenditures, and expected cash requirements from known contractual obligations for the next twelve months and beyond.
Cash provided by operating activities was $444.3 million for Holdings and $454.8 million for CUSA for the year ended December 31, 2023 compared with $136.0 million for Holdings and $153.4 million for CUSA for the year ended December 31, 2022. The increase in cash provided by operating activities was primarily driven by the timing and level of revenue earned during 2023 and the timing of payments to vendors for expenses during 2022 and 2023.
Investing Activities
Investing activities have been principally related to the development, remodel and acquisition of theatres. New theatre openings, remodels and acquisitions historically have been financed with internally generated cash and by debt financing, including borrowings under our senior secured credit facility. Cash used for investing activities was $131.8 million and $96.3 million for the years ended December 31, 2023 and 2022, respectively. The increase in cash used for investing activities was primarily due to higher capital expenditures in 2023, partially offset by proceeds from the sale of the Company’s Ecuador subsidiary in September 2023. The increase in capital expenditures in 2023 was due to the continued recovery of our business from the effects of the COVID-19 pandemic and execution of our capital allocation strategy.
Below is a summary of capital expenditures, disaggregated by new and existing theatres, for the periods indicated (in millions):
|
|
Year Ended December 31, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
New theatres |
|
$ |
33.1 |
|
|
$ |
9.1 |
|
Existing theatres |
|
|
77.6 |
|
|
|
140.4 |
|
Total capital expenditures |
|
$ |
110.7 |
|
|
$ |
149.5 |
|
34
We operated 501 theatres with 5,719 screens worldwide as of December 31, 2023. Theatres and screens opened and closed during the year ended December 31, 2023 were as follows:
|
|
December 31, 2022 |
|
|
Built |
|
|
Closed |
|
|
December 31, 2023 |
|
||||
U.S. (42 states) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Theatres |
|
|
318 |
|
|
|
— |
|
|
|
(9 |
) |
|
|
309 |
|
Screens |
|
|
4,399 |
|
|
|
— |
|
|
|
(75 |
) |
|
|
4,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
International (13 countries) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Theatres (1) |
|
|
200 |
|
|
|
1 |
|
|
|
(9 |
) |
|
|
192 |
|
Screens (1) |
|
|
1,448 |
|
|
|
4 |
|
|
|
(57 |
) |
|
|
1,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Worldwide |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Theatres |
|
|
518 |
|
|
|
1 |
|
|
|
(18 |
) |
|
|
501 |
|
Screens |
|
|
5,847 |
|
|
|
4 |
|
|
|
(132 |
) |
|
|
5,719 |
|
As of December 31, 2023, the following signed commitments were outstanding:
|
|
Theatres (1) |
|
|
Screens (1) |
|
|
Estimated Cost (2) |
|
|||
Expected to open during 2024 |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
|
1 |
|
|
|
7 |
|
|
$ |
18.5 |
|
International |
|
|
2 |
|
|
|
10 |
|
|
|
2.7 |
|
Total during 2024 |
|
|
3 |
|
|
|
17 |
|
|
$ |
21.2 |
|
|
|
|
|
|
|
|
|
|
|
|||
Expected to open subsequent to 2024 |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
|
2 |
|
|
|
26 |
|
|
$ |
11.4 |
|
International |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total subsequent to 2024 |
|
|
2 |
|
|
|
26 |
|
|
$ |
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|||
Total commitments at December 31, 2023 |
|
|
5 |
|
|
|
43 |
|
|
$ |
32.6 |
|
Actual expenditures for continued theatre development, remodels and acquisitions are subject to change based upon the availability of attractive opportunities. During the next twelve months and the foreseeable future, we plan to fund capital expenditures for our continued development with cash flow from operations and, if needed, borrowings under our senior secured credit facility, proceeds from debt issuances, sale leaseback transactions and/or sales of excess real estate.
Financing Activities
Cash used for financing activities was $125.4 million and $52.2 million for the years ended December 31, 2023 and 2022, respectively. The increase in cash used for financing activities was primarily due to the partial redemption of the 8.75% secured notes, partially offset by the net proceeds from the refinancing of the Credit Agreement during the year ended December 31, 2023.
Holdings, at the discretion of its board of directors and subject to applicable law, may pay dividends on its common stock. The amount, if any, of the dividends to be paid in the future will depend upon available cash balances, anticipated cash needs, overall financial condition, loan agreement restrictions as discussed below, future prospects for earnings and cash flows, as well as other relevant factors. As a result of the impact of the COVID-19 pandemic, Holdings suspended its quarterly dividend to its shareholders.
We may, from time to time, seek to retire or repurchase our outstanding debt securities through cash purchases or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Such
35
repurchases or exchanges, if any, will depend on the availability and prices of such debt securities, prevailing market conditions, or liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Long-term debt for Holdings and CUSA consisted of the following as of December 31, 2022 and 2023 (in millions):
|
|
December 31, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Cinemark Holdings, Inc. 4.50% convertible senior notes due 2025 |
|
$ |
460.0 |
|
|
$ |
460.0 |
|
Cinemark USA, Inc. term loan due 2030 (see Senior Secured Credit Facility below) |
|
|
626.5 |
|
|
|
645.1 |
|
Cinemark USA, Inc. 8.75% senior secured notes due 2025 |
|
|
250.0 |
|
|
|
150.0 |
|
Cinemark USA, Inc. 5.875% senior notes due 2026 |
|
|
405.0 |
|
|
|
405.0 |
|
Cinemark USA, Inc. 5.25% senior notes due 2028 |
|
|
765.0 |
|
|
|
765.0 |
|
Other |
|
|
10.1 |
|
|
|
7.0 |
|
Total long-term debt carrying value (1) |
|
$ |
2,516.6 |
|
|
$ |
2,432.1 |
|
Less: Current portion |
|
|
10.7 |
|
|
|
7.8 |
|
Less: Debt issuance costs and original issue discount, net of accumulated amortization (1) |
|
|
31.9 |
|
|
|
33.0 |
|
Long-term debt, less current portion, net of unamortized debt issuance costs and original issue discount (1) |
|
$ |
2,474.0 |
|
|
$ |
2,391.3 |
|
|
|
December 31, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Total long-term debt carrying value |
|
$ |
2,056.6 |
|
|
$ |
1,972.1 |
|
Less: Current portion |
|
|
10.7 |
|
|
|
7.8 |
|
Less: Debt issuance costs and original issue discount, net of accumulated amortization |
|
|
22.9 |
|
|
|
27.5 |
|
Long-term debt, less current portion, net of unamortized debt issuance costs and original issue discount |
|
$ |
2,023.0 |
|
|
$ |
1,936.8 |
|
As of December 31, 2023, we had $125.0 million in available borrowing capacity on our revolving line of credit.
36
As of December 31, 2023, Holdings’ long-term debt obligations, scheduled interest payments on long-term debt, future minimum lease obligations under non-cancelable operating and finance leases, scheduled interest payments under finance leases and other obligations for each period indicated are summarized as follows:
|
|
Payments Due by Period |
|
|||||||||||||||||
|
|
(in millions) |
|
|||||||||||||||||
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
After |
|
|||||
Contractual Obligations (1) |
|
Total |
|
|
One Year |
|
|
1 - 3 Years |
|
|
3 - 5 Years |
|
|
5 Years |
|
|||||
Long-term debt (2) |
|
$ |
2,432.1 |
|
|
$ |
7.8 |
|
|
$ |
1,030.4 |
|
|
$ |
780.4 |
|
|
$ |
613.5 |
|
Scheduled interest payments on long-term debt (3) |
|
|
539.0 |
|
|
|
144.1 |
|
|
|
220.4 |
|
|
|
152.6 |
|
|
|
21.9 |
|
Operating lease obligations (4) |
|
|
1,280.0 |
|
|
|
267.2 |
|
|
|
437.0 |
|
|
|
280.4 |
|
|
|
295.4 |
|
Finance lease obligations (4) |
|
|
105.0 |
|
|
|
18.0 |
|
|
|
28.4 |
|
|
|
23.5 |
|
|
|
35.1 |
|
Purchase and other commitments (5) |
|
|
72.9 |
|
|
|
60.1 |
|
|
|
12.4 |
|
|
|
0.3 |
|
|
|
0.1 |
|
Liability for uncertain tax positions (6) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total obligations |
|
$ |
4,429.0 |
|
|
$ |
497.2 |
|
|
$ |
1,728.6 |
|
|
$ |
1,237.2 |
|
|
$ |
966.0 |
|
|
|
Payments Due by Period |
|
|||||||||||||||||
|
|
(in millions) |
|
|||||||||||||||||
Contractual Obligations |
|
Total |
|
|
Less Than |
|
|
1 - 3 Years |
|
|
3 - 5 Years |
|
|
After |
|
|||||
Long-term debt (2) |
|
$ |
1,972.1 |
|
|
$ |
7.8 |
|
|
$ |
570.4 |
|
|
$ |
780.4 |
|
|
$ |
613.5 |
|
Scheduled interest payments on long-term debt (3) |
|
|
504.5 |
|
|
|
123.4 |
|
|
|
206.6 |
|
|
|
152.6 |
|
|
|
21.9 |
|
Liability for uncertain tax positions (6) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total obligations |
|
$ |
2,476.6 |
|
|
$ |
131.2 |
|
|
$ |
777.0 |
|
|
$ |
933.0 |
|
|
$ |
635.4 |
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
4.50% Convertible Senior Notes
On August 21, 2020, Holdings issued $460.0 million of 4.50% convertible senior notes (the "4.50% Convertible Senior Notes"). The 4.50% Convertible Senior Notes will mature on August 15, 2025, unless earlier repurchased or converted. Interest on the notes is payable on February 15 and August 15 of each year, beginning on February 15, 2021.
Holders of the 4.50% Convertible Senior Notes may convert their 4.50% Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding May 15, 2025 only under the following circumstances: (1) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (2) if Holdings distributes to all or substantially all stockholders (i) rights options or warrants entitling them to purchase shares at a discount to the recent average trading price of its common stock (including due to a stockholder rights plan) or (ii) Holdings’ assets or securities or rights, options or warrants to purchase the same with a per share value exceeding 10% of the trading price of Holdings’ common stock, (3) upon the occurrence of specified corporate events as described further in the indenture. Beginning May 15, 2025, holders may convert their 4.50% Convertible Senior Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, or (4) during any calendar quarter commencing after the calendar
37
quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of Holdings’ common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to $18.66 per share (130% of the initial conversion price of $14.35 per share), on each applicable trading day. Upon conversion of the 4.50% Convertible Senior Notes, Holdings will pay or deliver cash, shares of its common stock or a combination of cash and shares of its common stock, at its election.
The initial conversion rate is 69.6767 shares of Holdings’ common stock per one thousand dollars principal amount of the 4.50% Convertible Senior Notes. The conversion rate will be subject to adjustment upon the occurrence of certain events. If a make-whole fundamental change as defined in the indenture occurs prior to the maturity date, Holdings will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 4.50% Convertible Senior Notes in connection with such make-whole fundamental change.
The 4.50% Convertible Notes are effectively subordinated to any of Holdings’, or its subsidiaries’, existing and future secured debt to the extent of the value of the assets securing such indebtedness, including obligations under the Credit Agreement. The 4.50% Convertible Notes are structurally subordinated to all existing and future debt and other liabilities, including trade payables, and including CUSA’s 8.75% Secured Notes due 2025, 5.25% Senior Notes due 2028 and 5.875% Senior Notes due 2026, or, collectively, CUSA’s senior notes (but excluding all obligations under the Credit Agreement which are guaranteed by Holdings). The 4.50% Convertible Notes rank equally in right of payment with all existing and future unsubordinated debt, including all obligations under the Credit Agreement, which such Credit Agreement is guaranteed by Holdings, and senior in right of payment to any future debt that is expressly subordinated in right of payment to the 4.50% Convertible Senior Notes. The 4.50% Convertible Notes are not guaranteed by any of Holdings’ subsidiaries.
Concurrently with the issuance of the 4.50% Convertible Senior Notes, Holdings entered into privately negotiated convertible note hedge transactions, or the Hedge Transactions, with one or more of the initial purchasers of the 4.50% Convertible Senior Notes or their respective affiliates, or the Option Counterparties. The Hedge Transactions cover the number of shares of our common stock that will initially underlie the aggregate amount of the 4.50% Convertible Senior Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 4.50% Convertible Senior Notes. The Hedge Transactions are generally expected to reduce potential dilution to Holdings’ common stock upon any conversion of the 4.50% Convertible Senior Notes and/or offset any cash payments we may be required to make in excess of the principal amount of converted 4.50% Convertible Senior Notes, as the case may be. Concurrently with entering into the Hedge Transactions, Holdings also entered into separate privately negotiated warrant transactions with Option Counterparties, or the Warrant Transactions, whereby Holdings sold to Option Counterparties warrants to purchase (subject to the net share settlement provisions set forth therein) up to the same number of shares of Holdings common stock, subject to customary anti-dilution adjustments, or the Warrants. The Warrants could separately have a dilutive effect to the extent that the market value per share of Holdings common stock exceeds the strike price of the warrants on the applicable expiration dates unless, subject to the terms of the Warrants, Holdings elects to cash settle the Warrants. The exercise price of the Warrants is initially $22.08 and is subject to certain adjustments under the terms of the warrants. Holdings received $89.4 million in cash proceeds from the sale of Warrants, which were used along with proceeds from the 4.50% Convertible Senior Notes, to pay approximately $142.1 million to enter into the Hedge Transactions.
Together, the Hedge Transactions and the Warrants are intended to reduce the potential dilution from the conversion of the 4.50% Convertible Senior Notes. The Hedge Transactions and Warrants are recorded in equity and are not accounted for as derivatives, in accordance with applicable accounting guidance.
Senior Secured Credit Facility
On May 26, 2023, CUSA amended and restated its senior secured credit facility (the “Credit Agreement”) to provide for an aggregate principal amount of $775.0 million, consisting of a $650.0 million term loan with a maturity date of May 24, 2030 and a $125.0 million revolving credit facility with a maturity date of May 26, 2028. The term loan is subject to a springing maturity date of April 15, 2028 if CUSA’s 5.25% Senior Notes due 2028 have not been paid or refinanced as required under the Credit Agreement prior to such date. The revolving credit facility is subject to springing maturity dates of January 30, 2025, December 14, 2025 and April 15, 2028 if CUSA’s 8.75% Senior Secured Notes due 2025, 5.875% Senior Notes due 2026 and 5.25% Senior Notes due 2028 have not been paid or refinanced as required under the Credit Agreement prior to such dates, as more specifically described in the Credit Agreement.
38
CUSA used the $632.7 million net proceeds of the borrowings under the Credit Agreement to fund the $628.3 million repayment of the term loan outstanding under the Credit Agreement prior to the amendment and restatement and accrued interest thereon, and for other general corporate purposes. As of December 31, 2023, there was $645.1 outstanding under the term loan and no borrowings were outstanding under the $125.0 million revolving line of credit.
Under the Credit Agreement, quarterly principal payments of $1.6 million are due on the term loan through December 31, 2030, with a final principal payment of the remaining unpaid principal due on May 24, 2030.
The amended term loan was issued net of an original issue discount of $9.8 million. CUSA also incurred a total of approximately $10.1 million in debt issuance costs in connection with the amendment, which are reflected in the consolidated financial statements as follows: (i) $7.5 million in debt issuance costs were capitalized and are reflected as a reduction of “Long-term debt, less current portion” on the Company’s consolidated balance sheet; and (ii) $2.1 million of fees paid to lenders and $0.5 million of legal and other fees are included in “Loss on debt extinguishment and refinancing” in the Company’s consolidated statement of income for the year ended December 31, 2023. As a result of the amendment, CUSA also wrote-off $4.7 million of unamortized debt issuance costs associated with exiting lenders of the refinanced Credit Agreement.
Interest on the term loan accrues, at CUSA's option, at either (i) a rate determined by reference to the secured overnight financing rate ("SOFR") as published by CME Group Benchmark Administration Limited and identified by Barclay's Bank PLC (the Administrative Agent) as the forward-looking term rate based on SOFR for a period of 1, 3, or 6 months (depending upon the Interest Period (as defined in the Credit Agreement) chosen by CUSA) (the "Term SOFR Rate"), subject to a floor of 0.50% per annum, plus an applicable margin of 3.75% per annum, or (ii) for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Reserve Bank of New York Rate in effect on such day, plus 1/2 of 1.00% and (c) the Term SOFR Rate for a one month Interest Period, as published two U.S. Government Securities Business Days prior to such day (or if such day is not a U.S. Government Securities Business Day, the immediately preceding U.S. Government Securities Business Day), plus 1.00% (this clause (ii), the "Alternate Base Rate"), subject in the case of this clause (ii) to a floor of 1.50% per annum, plus, in the case of this clause (ii), an applicable margin of 2.75%. The average interest rate on outstanding term loan borrowings under the Credit Agreement as of December 31, 2023 was approximately 7.1% per annum, after giving effect to the interest rate swap agreements discussed below.
Interest on revolving credit loans accrues, at CUSA's option, at either (i) the Term SOFR Rate plus an applicable margin that ranges from 3.00% to 3.50% per annum, or (ii) the Alternate Base Rate, subject, in the case of this clause (ii) to a floor of 1.00% per annum, plus, in the case of this clause (ii), an applicable margin that ranges from 2.00% to 2.50%. The applicable margin with respect to revolving credit loans is a function of the Consolidated Net Senior Secured Leverage Ratio as defined in the Credit Agreement. As of December 31, 2023, the applicable margin was 3.25%, however, there were no borrowings outstanding under the revolving line of credit. In addition, CUSA is required to pay a commitment fee on the revolving line of credit that accrues at a rate ranging from 0.20% to 0.375% per annum of the daily unused portion of the revolving line of credit. The commitment fee rate is a function of the Consolidated Net Senior Secured Leverage Ratio and was 0.25% at December 31, 2023.
CUSA’s obligations under the Credit Agreement are guaranteed by Holdings and certain subsidiaries of Holdings other than CUSA (the “Other Guarantors”) and are secured by security interests in substantially all of CUSA’s, Holdings’ and the Other Guarantors’ personal property.
The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on the ability of Holdings, CUSA and their subsidiaries to: merge, consolidate, liquidate, or dissolve; sell, transfer or otherwise dispose of assets; create, incur or permit to exist certain indebtedness and liens; pay dividends, repurchase stock and make other Restricted Payments (as defined in the Credit Agreement); prepay certain indebtedness; make investments; enter into transactions with affiliates; and change the nature of their business. At any time that CUSA has revolving credit loans outstanding, it is not permitted to allow the Consolidated Net Senior Secured Leverage Ratio to exceed 3.5 to 1.0 for any period of four consecutive fiscal quarters ending on the last day of any fiscal quarter. As of December 31, 2023, there were no revolving credit loans outstanding under the revolving line of credit, and CUSA’s Consolidated Net Senior Secured Leverage Ratio was 0.3 to 1.0.
The Credit Agreement also includes customary events of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, a change of control, material money judgments and failure to maintain security interests. If an event of default occurs, all commitments under the Credit Agreement may be terminated and all obligations under the Credit Agreement could
39
be accelerated by the Lenders, causing all loans outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable.
The Restricted Payments covenant, as defined in the Credit Agreement generally does not limit the ability of Holdings and its subsidiaries to pay dividends and make other Restricted Payments if the Consolidated Net Total Leverage Ratio (as defined in the Credit Agreement) is less than or equal to 2.75 to 1.00. If the Consolidated Net Total Leverage Ratio is greater than 2.75 to 1.00, but not greater than 5.00 to 1.00, Restricted Payments generally may be made in an aggregate amount not to exceed the Available Amount (as defined in the Credit Agreement), which is a function of CUSA’s Consolidated EBITDA minus 1.75 times its Consolidated Interest Expense (as such terms are defined in the Credit Agreement) and certain other factors as specified in the Credit Agreement. As of December 31, 2023, the Consolidated Net Total Leverage Ratio was 2.13 to 1.00 and the Available Amount was $599.1 million. In addition, the Credit Agreement contains other baskets that allow certain Restricted Payments in excess of the Applicable Amount.
We have three interest rate swap agreements that are used to hedge a portion of the interest rate risk associated with the variable interest rates on the term loan outstanding under the Credit Agreement. See Note 14 to the consolidated financial statements for discussion of the interest rate swaps.
5.875% Senior Notes
On March 16, 2021, CUSA issued $405 million aggregate principal amount of 5.875% senior notes due 2026, at par value (the “5.875% Senior Notes”). Proceeds, after payment of fees, were used to fund a cash tender offer to purchase any and all of CUSA’s 5.125% Senior Notes (the “5.125% Senior Notes”) and to redeem any of the 5.125% Senior Notes that remained outstanding after the tender offer. Interest on the 5.875% Senior Notes is payable on March 15 and September 15 of each year. The 5.875% Senior Notes mature on March 15, 2026. CUSA incurred debt issuance costs of approximately $6.0 million in connection with the issuance, which are recorded as a reduction of long-term debt on the consolidated balance sheets.
The 5.875% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of CUSA’s subsidiaries that guarantee, assume or become liable with respect to any of CUSA’s or a guarantor’s debt. The 5.875% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of CUSA’s and its guarantor’s existing and future senior debt and senior in right of payment to all of CUSA’s and its guarantors’ existing and future senior subordinated debt. The 5.875% Senior Notes and the guarantees are effectively subordinated to all of CUSA’s and its guarantor’s existing and future secured debt to the extent of the value of the collateral securing such debt, including all borrowings under CUSA’s Credit Agreement. The 5.875% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of CUSA’s subsidiaries that do not guarantee the 5.875% Senior Notes.
CUSA may redeem the 5.875% Senior Notes in whole or in part at redemption prices set forth in the indenture. Prior to March 15, 2024, CUSA may redeem the 5.875% Senior Notes in whole or in part at 102.938% of the principal amount plus accrued interest on the 5.875% Senior Notes to the date of redemption. On or after March 15, 2024, CUSA may redeem the 5.875% Senior Notes in whole or in part at 101.469% of the principal amount plus accrued and unpaid interest on the 5.875% Senior Notes to the date of redemption. On or after March 15, 2025, CUSA may redeem the 5.875% Senior Notes in whole or in part at 100% of the principal amount plus accrued and unpaid interest on the 5.875% Senior Notes to the date of redemption.
5.25% Senior Notes
On June 15, 2021, CUSA issued $765 million aggregate principal amount of 5.25% senior notes due 2028, at par value (the “5.25% Senior Notes”). Proceeds, after payment of fees, were used to redeem all of CUSA’s 4.875% $755 million aggregate principal amount of Senior Notes due 2023 (the “4.875% Senior Notes”). Interest on the 5.25% Senior Notes is payable on January 15 and July 15 of each year, beginning January 15, 2022. The 5.25% Senior Notes mature on July 15, 2028. CUSA incurred debt issuance costs of approximately $10.7 million in connection with the issuance, which are recorded as a reduction of long-term debt on the consolidated balance sheets.
The 5.25% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of CUSA’s subsidiaries that guarantee, assume or become liable with respect to any of CUSA’s or a guarantor’s debt. The 5.25% Senior Notes and the guarantees will be CUSA’s and the guarantors’ senior unsecured obligations and (i) rank equally in right of payment to CUSA’s and the guarantors’ existing and future senior debt,
40
including borrowings under CUSA’s Credit Agreement (as defined below) and CUSA’s existing senior notes, (ii) rank senior in right of payment to CUSA’s and the guarantors’ future subordinated debt, (iii) are effectively subordinated to all of CUSA’s and the guarantors’ existing and future secured debt, including all obligations under the Credit Agreement and CUSA’s 8.75% senior secured notes due 2025, in each case to the extent of the value of the collateral securing such debt, (iv) are structurally subordinated to all existing and future debt and other liabilities of CUSA’s non-guarantor subsidiaries, and (v) are structurally senior to the 4.50% convertible senior notes due 2025 issued by Holdings.
Prior to July 15, 2024, CUSA, Inc. may redeem all or any part of the 5.25% Senior Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the 5.25% Senior Notes to the date of redemption. In addition, prior to July 15, 2024, CUSA may redeem up to 40% of the aggregate principal amount of the 5.25% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture, so long as at least 60% of the principal amount of the 5.25% Senior Notes remains outstanding immediately after each such redemption. On or after July 15, 2024, CUSA may redeem the 5.25% Senior Notes in whole or in part at redemption prices specified in the indenture.
8.75% Secured Notes
On April 20, 2020, CUSA issued $250.0 million aggregate principal amount of 8.75% senior secured notes due 2025, or the 8.75% Secured Notes. The 8.75% Secured Notes mature on May 1, 2025. Interest on the 8.75% Secured Notes is payable on May 1 and November 1 of each year.
CUSA may redeem the 8.75% Secured Notes in whole or in part at redemption prices specified in the indenture. Prior to May 1, 2024, CUSA, Inc. may redeem all or any part of the 8.75% Senior Notes at its option at 102.188% of the principal amount plus accrued and unpaid interest on the 8.75% Senior Notes to the date of redemption. On or after May 1, 2024, CUSA may redeem the 8.75% Senior Notes in whole or in part at 100% of the principal amount plus accrued and unpaid interest on the 8.75% Senior Notes to the date of redemption.
On May 1, 2023, CUSA redeemed $100.0 million in principal amount of the 8.75% Secured Notes plus accrued interest thereon for $106.6 million in cash. Following the redemption, $150.0 million in aggregate principal amount of the 8.75% Secured Notes remains outstanding. As a result of the redemption, CUSA recognized a loss on extinguishment of debt totaling $3.4 million, which includes a $2.2 million premium paid on the redemption of bonds and a $1.2 million write-off of unamortized debt issuance costs, and is reflected in “Loss on debt extinguishment and refinancing” in the Company’s consolidated statement of income for the year ended December 31, 2023.
The 8.75% Secured Notes are fully and unconditionally guaranteed on a joint and several senior basis by certain of CUSA’s subsidiaries that guarantee, assume or in any other manner become liable with respect to any of CUSA’s or its guarantors’ other debt. If CUSA cannot make payments on the 8.75% Secured Notes when they are due, CUSA guarantors must make them instead. Under certain circumstances, the guarantees may be released without action by, or the consent of, the holders of the 8.75% Secured Notes.
The indenture governing the 8.75% Secured Notes contains covenants that limit, among other things, the ability of CUSA 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 8.75% Secured Notes, CUSA would be required to make an offer to repurchase the 8.75% 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 8.75% Secured Notes allows CUSA 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 the years ended December 31, 2020 and 2021, certain of CUSA’s international subsidiaries borrowed an aggregate of $35.8 million under various local bank loans. The bank loans outstanding as of December 31, 2022 and 2023 totaled $10.1 million and $7.0 million, respectively. The remaining bank loan outstanding at December 31,
41
2023 mature in January 2029. The current interest rate on the remaining bank loan outstanding at December 31, 2023 is 4.0%.
Covenant Compliance
The indentures governing the 5.875% Senior Notes, the 5.25% Senior Notes and the 8.75% Secured Notes ("the indentures") contain covenants that limit, among other things, the ability of CUSA and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of December 31, 2023, CUSA could have distributed up to approximately $3,556.8 billion to its parent company and sole stockholder, Holdings, under the terms of the indentures, subject to its available cash and other borrowing restrictions outlined in the indentures. Upon a change of control, as defined in the indentures, CUSA would be required to make an offer to repurchase the 5.875% Senior Notes, the 5.25% Senior Notes and the 8.75% 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 indentures allow CUSA to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of December 31, 2023 was 5.5 to 1.
See discussion of dividend restrictions and the consolidated net senior secured leverage ratio under the Credit Agreement at Senior Secured Credit Facility above.
As of December 31, 2023, we believe we were in full compliance with all agreements, including related covenants, governing our outstanding debt.
Ratings
We are rated by nationally recognized rating agencies. The rating scales and methodologies used to derive individual ratings may vary from agency to agency. Credit ratings are issued by credit rating agencies based on evaluations of our ability to pay back our outstanding debt and the likelihood that we would default on that debt prior to its maturity. The credit ratings issued by the credit rating agencies represent the credit rating agency's evaluation of both qualitative and quantitative information for the Company. The credit ratings that are issued are based on the credit rating agency’s judgment and experience in determining what information should be considered in giving a rating to a particular company. Ratings are always subject to change and there can be no assurance that our current ratings will continue for any given period of time. A downgrade of our debt ratings, depending on the extent, could increase the cost to borrow funds.
New Accounting Pronouncements
See Note 2 to the consolidated financial statements for a discussion of recently issued accounting pronouncements and their impact on our financial statements.
Seasonality
Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. The most successful motion pictures have historically been released during summer months in the U.S., extending from May to July, and during the holiday season, extending from November through year-end. In our Latin American markets, while Hollywood content has similar release dates as in the U.S., the local holidays and seasons vary. The unexpected emergence of a hit film during other periods or the failure of an expected success at a key time could alter this seasonality trend. The timing, quantity and quality of film releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or for the same period in the following year.
42
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to financial market risks, including changes in interest rates and foreign currency exchange rates.
Interest Rate Risk
The Company currently has variable rate debt. An increase or decrease in interest rates would affect its interest expense relating to this variable rate debt. At December 31, 2023, we had an aggregate of $202.1 million of variable rate debt outstanding, after giving effect to the interest rate swap agreements discussed below. Based on the interest rates in effect on the variable rate debt outstanding at December 31, 2023, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $2.0 million.
The tables below provide information about Holdings’ fixed rate and variable rate long-term debt agreements as of December 31, 2023, which includes fixed rate and variable rate long-term debt of CUSA which is guaranteed by Holdings.
Holdings Debt
|
|
Expected Maturity for the Years Ending December 31, |
|
|
Average |
|
||||||||||||||||||||||||||||||
|
|
(in millions) |
|
|
Interest |
|
||||||||||||||||||||||||||||||
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
Thereafter |
|
|
Total |
|
|
Fair Value |
|
|
Rate |
|
|||||||||
Fixed rate |
|
$ |
— |
|
|
$ |
610.0 |
|
|
$ |
405.0 |
|
|
$ |
— |
|
|
$ |
765.0 |
|
|
$ |
450.0 |
|
|
$ |
2,230.0 |
|
|
$ |
2,258.2 |
|
|
|
5.7 |
% |
Variable rate |
|
|
7.8 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
|
163.5 |
|
|
|
202.1 |
|
|
|
202.1 |
|
|
|
8.9 |
% |
Total debt (1) |
|
$ |
7.8 |
|
|
$ |
617.7 |
|
|
$ |
412.7 |
|
|
$ |
7.7 |
|
|
$ |
772.7 |
|
|
$ |
613.5 |
|
|
$ |
2,432.1 |
|
|
$ |
2,460.3 |
|
|
|
|
|
CUSA Debt
|
|
Expected Maturity for the Years Ending December 31, |
|
|
Average |
|
||||||||||||||||||||||||||||||
|
|
(in millions) |
|
|
Interest |
|
||||||||||||||||||||||||||||||
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
Thereafter |
|
|
Total |
|
|
Fair Value |
|
|
Rate |
|
|||||||||
Fixed rate |
|
$ |
— |
|
|
$ |
150.0 |
|
|
$ |
405.0 |
|
|
$ |
— |
|
|
$ |
765.0 |
|
|
$ |
450.0 |
|
|
$ |
1,770.0 |
|
|
$ |
1,701.7 |
|
|
|
6.0 |
% |
Variable rate |
|
|
7.8 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
|
163.5 |
|
|
|
202.1 |
|
|
|
202.1 |
|
|
|
8.9 |
% |
Total debt (1) |
|
$ |
7.8 |
|
|
$ |
157.7 |
|
|
$ |
412.7 |
|
|
$ |
7.7 |
|
|
$ |
772.7 |
|
|
$ |
613.5 |
|
|
$ |
1,972.1 |
|
|
$ |
1,903.8 |
|
|
|
|
|
Interest Rate Swap Agreements
All of our interest rate swap agreements qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on each of Holdings’ and CUSA’s consolidated balance sheets as an asset or liability with the related gains or losses reported as a component of accumulated other comprehensive loss. See Note 14 to the consolidated financial statements for further discussion of the interest rate swap agreements.
Below is a summary of our interest rate swap agreements as of December 31, 2023:
Notional |
|
|
|
|
|
|
Amount |
|
Pay Rate |
|
Receive Rate |
|
Expiration Date |
$ 137.5 million |
|
2.15% |
|
1-Month Term SOFR |
|
December 31, 2024 |
$ 137.5 million |
|
2.08% |
|
1-Month Term SOFR |
|
December 31, 2024 |
$ 175.0 million |
|
3.20% |
|
1-Month Term SOFR |
|
December 31, 2026 |
$ 450.0 million |
|
|
|
|
|
|
Foreign Currency Exchange Rate Risk
We are also exposed to market risk arising from changes in foreign currency exchange rates as a result of our international operations. Generally, we export from the U.S. certain of the equipment and interior finish items and other operating supplies used by our international subsidiaries. A majority of the revenues and operating expenses of our international subsidiaries are transacted in the country’s local currency. U.S. GAAP requires that our subsidiaries use the currency of the primary economic environment in which they operate as their functional currency. If our subsidiaries operate in a highly inflationary economy, U.S. GAAP requires that the U.S. dollar be used as the functional currency for the subsidiary, which could impact future results of operations as reported. Currency fluctuations in the countries in which we operate result in us reporting exchange gains (losses) or foreign currency translation adjustments. Based upon our equity ownership in our international subsidiaries as of December 31, 2023, holding everything else constant, a 10% immediate, simultaneous, unfavorable change in all of the foreign currency
43
exchange rates to which we are exposed, would decrease the aggregate net book value of our investments in our international subsidiaries by approximately $67.0 million and would decrease the aggregate net income of our international subsidiaries for the year ended December 31, 2023 by $10.3 million, respectively.
We 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 statements 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.
During 2019, the Argentine government instituted exchange controls restricting the ability of entities and individuals to exchange Argentine pesos for foreign currencies and to remit foreign currency out of Argentina. As a result of these currency exchange controls, markets in Argentina developed a legal trading mechanism known as the Blue Chip Swap that allows entities to transfer U.S. dollars out of and into Argentina. In a Blue Chip Swap transaction, an entity buys U.S. dollar denominated securities in Argentina using Argentine pesos, and subsequently sells the securities for U.S. dollars, in Argentina, to access U.S. dollars locally, or outside Argentina, by transferring the securities abroad, prior to being sold (the latter commonly known as Blue Chip Swap Rate). The Blue Chip Swap rate is the implicit exchange rate resulting from the Blue Chip Swap transaction. The Blue Chip Swap rate can diverge significantly from Argentina’s official exchange rate. During the year ended December 31, 2023, the Company entered into Blue Chip Swap transactions that resulted in a loss of approximately $12.4 million.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data for Holdings and CUSA are listed on the Index on page F-1 of this Form 10-K. Such financial statements and supplementary data are included herein beginning on page F-6.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of the Effectiveness of Disclosure Controls and Procedures
As of December 31, 2023, under the supervision and with the participation of Holdings’ and CUSA’s principal executive officer and principal financial officer, Holdings and CUSA each carried out an evaluation required by the Exchange Act of the effectiveness of the design and operation of their respective disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based on this evaluation, Holdings’ and CUSA’s principal executive officer and principal financial officer concluded that, as of December 31, 2023, each of Holdings’ and CUSA’s respective disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by each of Holdings and CUSA in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to Holdings’ and CUSA’s management, including Holdings’ and CUSA’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There have been no changes in Holdings’ and CUSA’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred during the quarter ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, Holdings’ and CUSA’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Holdings’ and CUSA’s internal control framework and processes are designed to provide reasonable assurance to management and their respective board of directors regarding the reliability of financial reporting and the preparation of the Holdings’ and CUSA’s consolidated financial statements
44
in accordance with the accounting principles generally accepted in the U.S. Management has assessed the effectiveness of Holdings’ and CUSA’s internal control over financial reporting as of December 31, 2023 based on criteria set forth by the Committee of Sponsoring Organizations of the Commission, or COSO, in Internal Control—Integrated Framework (2013). As a result of this assessment, management concluded that, as of December 31, 2023, Holdings’ and CUSA’s internal control over financial reporting was effective.
Certifications of the Chief Executive Officer and the Chief Financial Officer for Holdings and CUSA, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Annual Report. This "Controls and Procedures" section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, which has direct access to Holdings’ board of directors through its Audit Committee, have audited the consolidated financial statements prepared by Holdings and CUSA. Their reports on the respective consolidated financial statements of Holdings and CUSA are included in Part II, Item 8, Financial Statements and Supplementary Data. Deloitte & Touche LLP has issued an attestation report on the Company’s internal control over financial reporting.
Limitations on Controls
Management for Holdings and CUSA does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent or detect all errors or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within Holdings and CUSA have been detected.
Item 9B. Other Information
During the quarter ended December 31, 2023, none of the directors or officers of the Company
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Cinemark Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Cinemark Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013)issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 16, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
|
Dallas, Texas |
February 16, 2024 |
46
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Incorporated by reference to Holdings’ proxy statement for its annual stockholders meeting to be held on May 15, 2024 and to be filed with the SEC within 120 days after December 31, 2023.
Item 11. Executive Compensation
Incorporated by reference to Holdings’ proxy statement for its annual stockholders meeting to be held on May 15, 2024 and to be filed with the SEC within 120 days after December 31, 2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated by reference to Holdings’ proxy statement for its annual stockholders meeting to be held on May 15, 2024 and to be filed with the SEC within 120 days after December 31, 2023.
Incorporated by reference to Holdings’ proxy statement for its annual stockholders meeting to be held on May 15, 2024 and to be filed with the SEC within 120 days after December 31, 2023.
Item 14. Principal Accounting Fees and Services
Incorporated by reference to Holdings’ proxy statement for its annual stockholders meeting to be held on May 15, 2024 and to be filed with the SEC within 120 days after December 31, 2023.
PART IV
Item 15. Exhibit and Financial Statement Schedules
(a) Documents Filed as Part of this Report
(b) Exhibits
See the accompanying Index beginning on page 48.
(c) Financial Statement Schedules
Schedule I – Condensed Financial Information of Cinemark Holdings, Inc. beginning on page S-1.
Supplemental Schedules Specified by the Senior Notes Indentures
As required by the indentures governing CUSA’s 5.25% Senior Notes, 5.875% Senior Notes and 8.75% Secured Notes, collectively “the senior notes”, CUSA has included in this filing, financial information for its subsidiaries that have been designated as unrestricted subsidiaries as defined by the indentures. As required by these indentures, CUSA has included a condensed consolidating balance sheet and condensed consolidating statements of income, comprehensive income and cash flows for CUSA. These supplementary schedules, beginning on page S-6 separately identify CUSA’s restricted subsidiaries and unrestricted subsidiaries as required by the indentures.
All Schedules not identified above have been omitted because they are not required, are not applicable or the information is included in the consolidated financial statements or notes contained in this report.
47
EXHIBIT INDEX
Number |
|
Registrant |
Exhibit Title |
|
|
|
|
3.1 |
|
Holdings |
|
3.2 |
|
Holdings |
|
3.3 |
|
CUSA |
|
3.4 |
|
CUSA |
|
4.1 |
|
Holdings |
|
4.2 |
|
Holdings |
|
4.3 |
|
Holdings |
|
4.4(a) |
|
Holdings CUSA |
|
4.4(b) |
|
Holdings CUSA |
|
4.5(a) |
|
Holdings CUSA |
|
4.5(b) |
|
Holdings CUSA |
|
4.6(a) |
|
Holdings CUSA |
|
4.6(b) |
|
Holdings CUSA |
|
4.7(a) |
|
Holdings |
|
4.7(b) |
|
Holdings |
|
4.8(a) |
|
Holdings CUSA |
|
4.8(b) |
|
Holdings CUSA |
|
4.9(a) |
|
Holdings CUSA |
|
4.9(b) |
|
Holdings CUSA |
|
10.1(a) |
|
Holdings CUSA |
Management Agreement, dated December 10, 1993, between Laredo Theatre, Ltd. and Cinemark USA, Inc. (incorporated by reference to Exhibit 10.14(b) to Cinemark USA, Inc.’s Annual Report on Form 10-K, File No. 033-47040, filed March 31, 1994). (P) |
48
10.1(b) |
|
Holdings CUSA |
|
10.1(c) |
|
Holdings CUSA |
|
10.1(d) |
|
Holdings CUSA |
|
10.2 |
|
Holdings CUSA |
License Agreement, dated December 10, 1993, between Laredo Joint Venture and Cinemark USA, Inc. (incorporated by reference to Exhibit 10.14(c) to Cinemark USA, Inc.’s Annual Report on Form 10-K, File No. 033-47040, filed March 31, 1994). (P) |
10.3(a) |
|
Holdings CUSA |
|
10.3(b) |
|
Holdings CUSA |
|
10.3(c) |
|
Holdings CUSA |
|
10.3(d) |
|
Holdings CUSA |
|
10.3(e) |
|
Holdings CUSA |
|
10.3(f) |
|
Holdings CUSA |
|
10.3(g) |
|
Holdings CUSA |
|
10.3(h) |
|
Holdings CUSA |
|
10.3(i) |
|
Holdings CUSA |
|
10.3(j) |
|
Holdings CUSA |
|
10.3(k) |
|
Holdings CUSA |
49
10.3(l) |
|
Holdings CUSA |
|
10.3(m) |
|
Holdings CUSA |
|
+10.4(a) |
|
Holdings CUSA |
|
+10.4(b) |
|
Holdings CUSA |
|
+10.4(c) |
|
Holdings CUSA |
|
+10.4(d) |
|
Holdings CUSA |
|
+10.4(e) |
|
Holdings CUSA |
|
+10.4(f) |
|
Holdings CUSA |
|
+10.4(g) |
|
Holdings CUSA |
|
+10.4(h) |
|
Holdings CUSA |
|
+10.4(i) |
|
Holdings CUSA |
|
+10.4(j) |
|
Holdings CUSA |
|
+10.4(k) |
|
Holdings CUSA |
|
+10.4(l) |
|
Holdings CUSA |
|
+10.5(a) |
|
Holdings |
|
+10.5(b) |
|
Holdings |
|
+10.5(c) |
|
Holdings |
|
+10.5(d) |
|
Holdings |
|
+10.5(e) |
|
Holdings |
|
+10.5(f) |
|
Holdings |
50
+10.6(a) |
|
Holdings |
Form of Restricted Stock Award Agreement pursuant to the Amended and Rested Cinemark Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.6(b) to Cinemark Holdings, Inc’s Annual Report on Form 10-K, File No. 001-33401 filed February 26, 2021). |
+10.6(b) |
|
Holdings |
|
+10.6(c) |
|
Holdings |
|
+10.6(d) |
|
Holdings |
|
+10.6(e) |
|
Holdings |
|
+10.6(f) |
|
Holdings |
|
+10.6(g) |
|
Holdings |
|
+10.6(h) |
|
Holdings |
|
+10.6(i) |
|
Holdings CUSA |
|
10.7(a) |
|
Holdings CUSA |
|
10.7(b) |
|
Holdings CUSA |
|
10.8 |
|
Holdings CUSA |
|
10.9(a) |
|
Holdings CUSA |
|
10.9(b) |
|
Holdings CUSA |
|
10.9(c) |
|
Holdings CUSA |
|
10.9(d) |
|
Holdings CUSA |
|
10.9(e) |
|
Holdings CUSA |
|
10.9(f) |
|
Holdings CUSA |
|
10.9(g) |
|
Holdings CUSA |
51
10.9(h) |
|
Holdings |
|
10.10(a) |
|
Holdings CUSA |
|
10.10(b) |
|
Holdings CUSA |
|
10.10(c) |
|
Holdings CUSA |
|
10.10(d) |
|
Holdings CUSA |
|
10.10(e) |
|
Holdings CUSA |
|
10.10(f) |
|
Holdings CUSA |
|
10.10(g) |
|
Holdings CUSA |
|
10.10(h) |
|
Holdings CUSA |
|
10.10(i) |
|
Holdings CUSA |
|
*10.10(j) |
|
Holdings CUSA |
|
10.11(a) |
|
Holdings CUSA |
|
10.11(b) |
|
Holdings CUSA |
|
10.11(c) |
|
Holdings CUSA |
|
10.11(d) |
|
Holdings CUSA |
|
10.11(e) |
|
Holdings CUSA |
52
10.11(f) |
|
Holdings CUSA |
|
10.11(g) |
|
Holdings CUSA |
|
10.11(h) |
|
Holdings CUSA |
|
10.11(i) |
|
Holdings CUSA |
|
10.12(a) |
|
Holdings CUSA |
|
10.12(b) |
|
Holdings CUSA |
|
10.12(c) |
|
Holdings CUSA |
|
10.12(d) |
|
Holdings CUSA |
|
10.12(e) |
|
Holdings CUSA |
|
10.12(f) |
|
Holdings CUSA |
|
10.12(g) |
|
Holdings CUSA |
|
10.12(h) |
|
Holdings CUSA |
|
10.13(a) |
|
Holdings CUSA |
|
10.13(b) |
|
Holdings CUSA |
|
10.13(c) |
|
Holdings CUSA |
|
10.13(d) |
|
Holdings CUSA |
|
10.13(e) |
|
Holdings CUSA |
|
10.13(f) |
|
Holdings CUSA |
53
|
|
|
|
10.13(g) |
|
Holdings CUSA |
|
10.14(a) |
|
Holdings CUSA |
|
10.14(b) |
|
Holdings CUSA |
|
10.14(c) |
|
Holdings CUSA |
|
10.14(d) |
|
Holdings CUSA |
|
10.14(e) |
|
Holdings CUSA |
|
10.15(a) |
|
Holdings CUSA |
|
10.15(b) |
|
Holdings CUSA |
|
10.15(c) |
|
Holdings CUSA |
|
10.15(d) |
|
Holdings CUSA |
|
10.15(e) |
|
Holdings CUSA |
|
10.15(f) |
|
Holdings CUSA |
|
10.16(a) |
|
Holdings CUSA |
|
10.16(b) |
|
Holdings CUSA |
|
10.16(c) |
|
Holdings CUSA |
|
10.16(d) |
|
Holdings CUSA |
54
|
|
|
|
10.16(e) |
|
Holdings CUSA |
|
10.17(a) |
|
Holdings CUSA |
|
10.17(b) |
|
Holdings CUSA |
|
10.17(c) |
|
Holdings CUSA |
|
10.17(d) |
|
Holdings CUSA |
|
10.17(e) |
|
Holdings CUSA |
|
10.17(f) |
|
Holdings CUSA |
|
10.18(a) |
|
Holdings CUSA |
|
10.18(b) |
|
Holdings CUSA |
|
10.18(c) |
|
Holdings CUSA |
|
10.18(d) |
|
Holdings CUSA |
|
10.18(e) |
|
Holdings CUSA |
|
10.18(f) |
|
Holdings CUSA |
|
10.19(a) |
|
Holdings CUSA |
|
10.19(b) |
|
Holdings CUSA |
|
10.19(c) |
|
Holdings CUSA |
55
|
|
|
|
10.19(d) |
|
Holdings CUSA |
|
10.19(e) |
|
Holdings CUSA |
|
10.192(f) |
|
Holdings CUSA |
|
10.19(g) |
|
Holdings CUSA |
|
10.19(h) |
|
Holdings CUSA |
|
10.19(i) |
|
Holdings CUSA |
|
10.20(a) |
|
Holdings CUSA |
|
10.20(b) |
|
Holdings CUSA |
|
10.20(c) |
|
Holdings CUSA |
First Amendment, dated as of July 9, 2021, to Lease Agreement, dated as of May 26, 2015, by and between Sy Arden Way LLC, as landlord and Century Theatres, Inc., as tenant, for Howe ‘Bout Arden Center, Sacramento, CA (incorporated by reference to Exhibit 10.1 to Cinemark Holdings Inc.’s Quarterly Report on Form 10-Q, File No. 001-33401, filed August 5, 2022). |
10.20(d) |
|
Holdings CUSA |
Second Amendment, dated as of June 24, 2022, to Lease Agreement, dated as of May 26, 2015, by and between Sy Arden Way LLC, as landlord and Century Theatres, Inc., as tenant, for Howe ‘Bout Arden Center, Sacramento, CA (incorporated by reference to Exhibit 10.2 to Cinemark Holdings Inc.’s Quarterly Report on Form 10-Q, File No. 001-33401, filed August 5, 2022). |
10.21 |
|
Holdings |
|
+10.22 |
|
Holdings |
|
10.23 |
|
Holdings CUSA |
|
10.24 |
|
Holdings CUSA |
|
10.25 |
|
Holdings CUSA |
|
10.26 |
|
Holdings CUSA |
|
10.27 |
|
Holdings |
|
10.28 |
|
Holdings |
|
*21.1 |
|
Holdings |
|
*21.2 |
|
CUSA |
56
*23.1 |
|
Holdings |
|
*31.1 |
|
Holdings |
|
*31.2 |
|
Holdings |
|
*31.3 |
|
CUSA |
|
*31.4 |
|
CUSA |
|
*32.1 |
|
Holdings |
|
*32.2 |
|
Holdings |
|
*32.3 |
|
CUSA |
|
*32.4 |
|
CUSA |
|
*97.1 |
|
Holdings |
Cinemark Holdings Inc.’s Clawback Policy dated as of November 16, 2023. |
*101 |
|
Holdings CUSA |
The following financial information from the combined Cinemark Holdings, Inc. and Cinemark USA, Inc. Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 16, 2024, formatted in iXBRL (Inline eXtensible Business Reporting Language), filed herewith: (i) Cinemark Holdings, Inc. Consolidated Balance Sheets (ii) Cinemark Holdings, Inc. Consolidated Statements of Income (Loss) (iii) Cinemark Holdings, Inc. Consolidated Statements of Comprehensive Income (Loss) (iv) Cinemark Holdings, Inc. Consolidated Statements of Equity (v) Cinemark Holdings, Inc. Consolidated Statements of Cash Flows (vi) Cinemark USA, Inc. Consolidated Balance Sheets (vii) Cinemark USA, Inc. Consolidated Statements of Income (Loss) (viii) Cinemark USA, Inc. Consolidated Statements of Comprehensive Income (Loss) (ix) Cinemark USA, Inc. Consolidated Statements of Equity (x) Cinemark USA, Inc. Consolidated Statements of Cash Flows (xi) Notes to Consolidated Financial Statements of Cinemark Holdings, Inc.and Cinemark USA, Inc. tagged as detailed text |
*104 |
|
Holdings CUSA |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Filed herewith.
+ Any management contract, compensatory plan or arrangement.
(P) Paper filing.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 16, 2024 |
|
CINEMARK HOLDINGS, INC CINEMARK USA, INC (Registrants) |
||
|
|
|
||
|
|
BY: |
|
/s/ Sean Gamble |
|
|
|
|
Sean Gamble |
|
|
|
|
Chief Executive Officer |
|
|
BY: |
|
/s/ Melissa Thomas |
|
|
|
|
Melissa Thomas |
|
|
|
|
Chief Financial Officer |
POWER OF ATTORNEY
Each person whose signature appears below hereby severally constitutes and appoints Sean Gamble and Melissa Thomas their true and lawful attorney-in-fact and agent, each with the power of substitution and resubstitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with accompanying exhibits and other related documents, with the Securities and Exchange Commission, and ratify and confirm all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue of said appointment.
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on the dates indicated.
CINEMARK HOLDINGS, INC.
|
|
|
|
|
Name |
|
Title |
|
Date |
/s/ Carlos M. Sepulveda |
|
Chairman of the Board and Director |
|
February 16, 2024 |
Carlos M. Sepulveda |
|
|
|
|
|
|
|
|
|
/s/ Sean Gamble |
|
Chief Executive Officer and Director |
|
February 16, 2024 |
Sean Gamble |
|
(principal executive officer) |
|
|
|
|
|
|
|
/s/ Melissa Thomas |
|
Chief Financial Officer |
|
February 16, 2024 |
Melissa Thomas |
|
(principal financial officer) |
|
|
|
|
|
|
|
/s/ Caren Bedard |
|
SVP — Global Controller and Treasury |
|
February 16, 2024 |
Caren Bedard |
|
(principal accounting officer) |
|
|
|
|
|
|
|
/s/ Darcy Antonellis |
|
Director |
|
February 16, 2024 |
Darcy Antonellis |
|
|
|
|
|
|
|
|
|
/s/ Benjamin D. Chereskin |
|
Director |
|
February 16, 2024 |
Benjamin D. Chereskin |
|
|
|
|
|
|
|
|
|
/s/ Nancy Loewe |
|
Director |
|
February 16, 2024 |
Nancy Loewe |
|
|
|
|
|
|
|
|
|
/s/ Kevin Mitchell |
|
Director |
|
February 16, 2024 |
Kevin Mitchell |
|
|
|
|
|
|
|
|
|
/s/ Steven Rosenberg |
|
Director |
|
February 16, 2024 |
Steven Rosenberg |
|
|
|
|
|
|
|
|
|
/s/ Enrique F. Senior |
|
Director |
|
February 16, 2024 |
Enrique F. Senior |
|
|
|
|
|
|
|
|
|
/s/ Raymond W. Syufy |
|
Director |
|
February 16, 2024 |
Raymond W. Syufy |
|
|
|
|
58
|
|
|
|
|
/s/ Nina Vaca |
|
Director |
|
February 16, 2024 |
Nina Vaca |
|
|
|
|
|
|
|
|
|
/s/ Mark Zoradi |
|
Director |
|
February 16, 2024 |
Mark Zoradi |
|
|
|
|
|
|
|
|
|
CINEMARK USA, INC.
|
|
|
|
|
Name |
|
Title |
|
Date |
/s/ Sean Gamble |
|
Chief Executive Officer and Director |
|
February 16, 2024 |
Sean Gamble |
|
(principal executive officer) |
|
|
|
|
|
|
|
/s/ Melissa Thomas |
|
Chief Financial Officer |
|
February 16, 2024 |
Melissa Thomas |
|
(principal financial officer) |
|
|
|
|
|
|
|
59
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to our stockholders. An annual report and proxy material may be sent to our stockholders subsequent to the filing of this Form 10-K. We shall furnish to the SEC copies of any annual report or proxy material that is sent to our stockholders.
60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page |
|
|
|
|
F-2 |
|
|
|
|
|
F-4 |
|
|
|
|
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS: |
|
|
|
|
|
|
F-6 |
|
|
|
|
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2021, 2022 and 2023 |
|
F-7 |
|
|
|
|
F-8 |
|
|
|
|
Consolidated Statements of Equity for the Years Ended December 31, 2021, 2022 and 2023 |
|
F-9 |
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2022 and 2023 |
|
F-10 |
|
|
|
CINEMARK USA, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS: |
|
|
|
|
|
|
F-11 |
|
|
|
|
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2021, 2022 and 2023 |
|
F-12 |
|
|
|
|
F-13 |
|
|
|
|
Consolidated Statements of Equity for the Years Ended December 31, 2021, 2022 and 2023 |
|
F-14 |
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2022 and 2023 |
|
F-15 |
|
|
|
Cinemark Holdings, Inc. and Cinemark USA, Inc. Notes to Consolidated Financial Statements |
|
F-16 |
|
|
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Cinemark Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cinemark Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2023, and 2022, the related consolidated statements of income (loss), comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Domestic Theatre-Level Long-Lived Assets (valuation assertion)—Refer to Notes 1 and 12 to the financial statements
Critical Audit Matter Description
The impairment evaluation of domestic long-lived assets is an assessment that begins with the Company’s monitoring of indicators of impairment on an individual theatre basis, which the Company believes is the lowest level for which there are identifiable cash flows. The Company reviews the domestic long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. The Company performed the domestic long-lived asset impairment evaluations each quarter during the year ended December 31, 2023, including a full quantitative impairment assessment for the quarter ended December 31, 2023. When performing a quantitative impairment assessment, the Company estimates undiscounted cash flows at the theatre level from continuing use through the remainder of the theatre’s estimated useful life. If the
F-2
estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, the Company then compares the carrying value of the asset group (the theatre) with its estimated fair value. The Company applies significant judgment in estimating the fair value of theatres, based on most recent theatre-level cash flows, projected theatre-level cash flows, and current industry trading multiples. When the estimated fair value is determined to be lower than the carrying value of the asset group, the asset group is written down to its estimated fair value.
We identified the valuation assertion related to the impairment of the domestic long-lived assets as a critical audit matter because of the significant judgment required by management to determine estimated undiscounted cash flows and market multiples used to derive fair values. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s judgements and estimates. In addition, the likelihood of exercising lease renewal options, could have a significant impact on the amount of any domestic long-lived asset impairment charge.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s undiscounted cash flow analysis, including the likelihood of exercising lease renewal options, include the following, among others:
/s/
February 16, 2024
We have served as the Company's auditor since 1988.
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Cinemark USA, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cinemark USA, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Domestic Theatre-level Long-Lived Assets (valuation assertion) – Refer to Notes 1 and 12 to the financial statements
Critical Audit Matter Description
The impairment evaluation of domestic long-lived assets is an assessment that begins with the Company’s monitoring of indicators of impairment on an individual theatre basis, which the Company believes is the lowest level for which there are identifiable cash flows. The Company reviews the domestic long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. The Company performed the domestic long-lived asset impairment evaluations each quarter during the year ended December 31, 2023, including a full quantitative impairment assessment for the quarter ended December 31, 2023. When performing a quantitative impairment assessment, the Company estimates undiscounted cash flows at the theatre level from continuing use through the remainder of the theatre’s estimated useful life. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, the Company then compares the carrying value of the asset group (the theatre) with its estimated fair value. The Company applies
F-4
significant judgment in estimating the fair value of theatres, based on most recent theatre-level cash flows, projected theatre-level cash flows, and current industry trading multiples. When the estimated fair value is determined to be lower than the carrying value of the asset group, the asset group is written down to its estimated fair value.
We identified the valuation assertion related to the impairment of the domestic long-lived assets as a critical audit matter because of the significant judgment required by management to determine estimated undiscounted cash flows and market multiples used to derive fair values. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s judgements and estimates. In addition, the likelihood of exercising lease renewal options, could have a significant impact on the amount of any domestic long-lived asset impairment charge.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s undiscounted cash flow analysis, including the likelihood of exercising lease renewal options, include the following, among others:
/s/
February 16, 2024
We have served as the Company's auditor since 1988.
F-5
PART IV - FINANCIAL INFORMATION
Item 15. Financial Statements
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
|
|
December 31, |
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December 31, |
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||
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2022 |
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2023 |
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||
Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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||
Inventories |
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Accounts receivable |
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Current income tax receivable |
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Prepaid expenses and other |
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Total current assets |
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$ |
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$ |
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||
Theatre properties and equipment, net |
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||
Operating lease right-of-use assets, net |
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Other long-term assets |
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Goodwill |
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Intangible assets, net |
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Investment in NCMI/NCM |
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Investments in affiliates |
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||
Deferred charges and other assets, net |
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Total other long-term assets |
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||
Total assets |
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$ |
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$ |
|
||
Liabilities and equity |
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||
Current liabilities |
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Current portion of long-term debt |
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$ |
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$ |
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||
Current portion of operating lease obligations |
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Current portion of finance lease obligations |
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Current income tax payable |
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Accounts payable |
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Accrued interest |
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Accrued film rentals |
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Accrued payroll |
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Accrued property taxes |
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Accrued other current liabilities (see Note 13) |
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||
Total current liabilities |
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||
Long-term liabilities |
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Long-term debt, less current portion |
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Operating lease obligations, less current portion |
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Finance lease obligations, less current portion |
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Long-term deferred tax liability |
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||
Long-term liability for uncertain tax positions |
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NCM screen advertising advances |
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|
||
Other long-term liabilities |
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|
||
Total long-term liabilities |
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||
|
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|
|||
Equity |
|
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|
||
Cinemark Holdings, Inc.'s stockholders' equity: |
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|
||
Common stock, $ |
|
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|
||
Additional paid-in-capital |
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|
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|
||
Treasury stock, |
|
|
( |
) |
|
|
( |
) |
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total Cinemark Holdings, Inc.'s stockholders' equity |
|
|
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|
||
Noncontrolling interests |
|
|
|
|
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|
||
Total equity |
|
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
|
|
$ |
|
||
The accompanying notes, as they relate to Cinemark Holdings, Inc., are an integral part of the consolidated financial statements.
F-6
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in millions, except per share data)
|
|
Years Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Revenue |
|
|
|
|
|
|
|
|
|
|||
Admissions |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Concession |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cost of operations |
|
|
|
|
|
|
|
|
|
|||
Film rentals and advertising |
|
|
|
|
|
|
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|
|||
Concession supplies |
|
|
|
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|
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|
|||
Salaries and wages |
|
|
|
|
|
|
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|
|||
Facility lease expense |
|
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|
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|
|||
Utilities and other |
|
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|
|
|
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|
|||
General and administrative expenses |
|
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|
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|
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|
|||
Depreciation and amortization |
|
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|
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|
|
|
|
|
|||
Impairment of long-lived and other assets |
|
|
|
|
|
|
|
|
|
|||
Restructuring costs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Loss (gain) on disposal of assets and other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total cost of operations |
|
|
|
|
|
|
|
|
|
|||
Operating (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|||
Loss on debt extinguishment and refinancing |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Foreign currency exchange and other related loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Distributions from DCIP |
|
|
|
|
|
|
|
|
|
|||
Distributions from NCM |
|
|
|
|
|
|
|
|
|
|||
Interest expense - NCM |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Equity in (loss) income of affiliates |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Unrealized gain on investment in NCMI |
|
|
|
|
|
|
|
|
|
|||
Total other expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
(Loss) income before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Income tax (benefit) expense |
|
|
( |
) |
|
|
|
|
|
|
||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Less: Net income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income attributable to Cinemark Holdings, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
|
|
|
|
|
|
|
|
|||
Diluted |
|
|
|
|
|
|
|
|
|
|||
(Loss) income per share attributable to Cinemark Holdings, Inc.'s common stockholders |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying notes, as they relate to Cinemark Holdings, Inc., are an integral part of the consolidated financial statements.
F-7
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
|
|
Years Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Other comprehensive (loss) income, net of tax |
|
|
|
|
|
|
|
|
|
|||
Unrealized gain (loss) due to fair value adjustments on interest rate swap agreements, net of taxes of $( |
|
|
|
|
|
|
|
|
( |
) |
||
Foreign currency translation adjustments |
|
|
( |
) |
|
|
|
|
|
|
||
Total other comprehensive (loss) income, net of tax |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Total comprehensive (loss) income, net of tax |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Comprehensive income attributable to noncontrolling interests |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Comprehensive (loss) income attributable to Cinemark Holdings, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying notes, as they relate to Cinemark Holdings, Inc., are an integral part of the consolidated financial statements.
F-8
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Accumulated |
|
|
Cinemark |
|
|
|
|
|
|
|
|||||||||||||
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional |
|
|
Earnings/ |
|
|
Other |
|
|
Holdings, Inc.'s |
|
|
|
|
|
|
|
||||||||||||||||
|
|
Shares |
|
|
|
|
|
Shares |
|
|
|
|
|
Paid-in- |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders' |
|
|
Noncontrolling |
|
|
Total |
|
||||||||||
|
|
Issued |
|
|
Amount |
|
|
Acquired |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
||||||||||
Balance at January 1, 2021 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Impact of adoption of ASU 2020-06, net of taxes of $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Issuance of restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of stock upon vesting of performance stock units |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Restricted stock forfeitures and stock withholdings related to share-based awards that vested during the year ended December 31, 2021 |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Share-based awards compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Amortization of accumulated losses for amended swap agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Issuance of restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of stock upon vesting of performance stock units |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Restricted stock forfeitures and stock withholdings related to share-based awards that vested during the year ended December 31, 2022 |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Share-based awards compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Amortization of accumulated losses for amended swap agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Issuance of restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of stock upon vesting of performance stock units |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Restricted stock forfeitures and stock withholdings related to share-based awards that vested during the year ended December 31, 2023 |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Share-based awards compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Amortization of accumulated gains for amended swap agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at December 31, 2023 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The accompanying notes, as they relate to Cinemark Holdings, Inc., are an integral part of the consolidated financial statements.
F-9
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
Years Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Operating activities |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|||
Depreciation |
|
|
|
|
|
|
|
|
|
|||
Amortization of intangible and other assets |
|
|
|
|
|
|
|
|
|
|||
Loss on debt extinguishment and refinancing |
|
|
|
|
|
|
|
|
|
|||
Amortization of original issue discount and debt issuance costs |
|
|
|
|
|
|
|
|
|
|||
Interest accrued on NCM screen advertising advances |
|
|
|
|
|
|
|
|
|
|||
Amortization of NCM screen advertising advances and other deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of accumulated losses (gains) for amended swap agreements |
|
|
|
|
|
|
|
|
( |
) |
||
Impairment of long-lived and other assets |
|
|
|
|
|
|
|
|
|
|||
Share-based awards compensation expense |
|
|
|
|
|
|
|
|
|
|||
Loss (gain) on disposal of assets and other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Unrealized gain on investment in NCMI |
|
|
|
|
|
|
|
|
( |
) |
||
Non-cash rent expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Equity in loss (income) of affiliates |
|
|
|
|
|
|
|
|
( |
) |
||
Deferred income tax (benefit) expense |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Distributions from equity investees |
|
|
|
|
|
|
|
|
|
|||
Changes in other assets and liabilities: |
|
|
|
|
|
|
|
|
|
|||
Inventories |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax receivable |
|
|
|
|
|
|
|
|
( |
) |
||
Prepaid expenses and other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred charges and other assets, net |
|
|
|
|
|
( |
) |
|
|
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
( |
) |
|
|
|
||
Income tax payable |
|
|
( |
) |
|
|
|
|
|
|
||
Liabilities for uncertain tax positions |
|
|
|
|
|
|
|
|
|
|||
Other long-term liabilities |
|
|
( |
) |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|||
Investing activities |
|
|
|
|
|
|
|
|
|
|||
Additions to theatre properties and equipment and other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net proceeds from sale of subsidiary |
|
|
|
|
|
|
|
|
|
|||
Proceeds from sale of assets and other |
|
|
|
|
|
|
|
|
|
|||
Net cash used for investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|||
Proceeds from refinancing of senior secured credit facility |
|
|
|
|
|
|
|
|
|
|||
Repayment of term loan upon refinancing of senior secured credit facility |
|
|
|
|
|
|
|
|
( |
) |
||
Redemption of $ |
|
|
|
|
|
|
|
|
( |
) |
||
Proceeds from issuance of senior notes |
|
|
|
|
|
|
|
|
|
|||
Redemption of senior notes |
|
|
( |
) |
|
|
|
|
|
|
||
Proceeds from other borrowings |
|
|
|
|
|
|
|
|
|
|||
Payment of debt issuance costs |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Fees paid related to debt refinancing |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Restricted stock withholdings for payroll taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Payments on finance leases |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net cash used for financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Increase (decrease) in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
|
|
||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|||
Beginning of period |
|
|
|
|
|
|
|
|
|
|||
End of period |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Supplemental information (see Note 19)
The accompanying notes, as they relate to Cinemark Holdings, Inc., are an integral part of the consolidated financial statements.
F-10
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2023 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Inventories |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Current income tax receivable |
|
|
|
|
|
|
||
Prepaid expenses and other |
|
|
|
|
|
|
||
Accounts receivable from parent |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Theatre properties and equipment, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets, net |
|
|
|
|
|
|
||
Other long-term assets |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Investment in NCMI/NCM |
|
|
|
|
|
|
||
Investments in affiliates |
|
|
|
|
|
|
||
Deferred charges and other assets, net |
|
|
|
|
|
|
||
Total other long-term assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and equity |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
$ |
|
|
$ |
|
||
Current portion of operating lease obligations |
|
|
|
|
|
|
||
Current portion of finance lease obligations |
|
|
|
|
|
|
||
Current income tax payable |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Accrued film rentals |
|
|
|
|
|
|
||
Accrued payroll |
|
|
|
|
|
|
||
Accrued property taxes |
|
|
|
|
|
|
||
Accrued other current liabilities (see Note 13) |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term liabilities |
|
|
|
|
|
|
||
Long-term debt, less current portion |
|
|
|
|
|
|
||
Operating lease obligations, less current portion |
|
|
|
|
|
|
||
Finance lease obligations, less current portion |
|
|
|
|
|
|
||
Long-term deferred tax liability |
|
|
|
|
|
|
||
Long-term liability for uncertain tax positions |
|
|
|
|
|
|
||
NCM screen advertising advances |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
||
Total long-term liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
Equity |
|
|
|
|
|
|
||
Cinemark USA, Inc.'s stockholder's equity: |
|
|
|
|
|
|
||
Class A common stock, $ |
|
|
|
|
|
|
||
Class B common stock, |
|
|
|
|
|
|
||
Treasury stock, |
|
|
( |
) |
|
|
( |
) |
Additional paid-in-capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total Cinemark USA, Inc.'s stockholder's equity |
|
|
|
|
|
|
||
Noncontrolling interests |
|
|
|
|
|
|
||
Total equity |
|
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
|
|
$ |
|
||
The accompanying notes, as they relate to Cinemark USA, Inc., are an integral part of the consolidated financial statements.
F-11
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in millions)
|
|
Years Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Revenue |
|
|
|
|
|
|
|
|
|
|||
Admissions |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Concession |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|||
Total revenue |
|
|
|
|
|
|
|
|
|
|||
Cost of operations |
|
|
|
|
|
|
|
|
|
|||
Film rentals and advertising |
|
|
|
|
|
|
|
|
|
|||
Concession supplies |
|
|
|
|
|
|
|
|
|
|||
Salaries and wages |
|
|
|
|
|
|
|
|
|
|||
Facility lease expense |
|
|
|
|
|
|
|
|
|
|||
Utilities and other |
|
|
|
|
|
|
|
|
|
|||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|||
Impairment of long-lived and other assets |
|
|
|
|
|
|
|
|
|
|||
Restructuring costs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Loss (gain) on disposal of assets and other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total cost of operations |
|
|
|
|
|
|
|
|
|
|||
Operating (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|||
Loss on debt extinguishment and refinancing |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Foreign currency exchange and other related loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Distributions from DCIP |
|
|
|
|
|
|
|
|
|
|||
Distributions from NCM |
|
|
|
|
|
|
|
|
|
|||
Interest expense - NCM |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Equity in (loss) income of affiliates |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Unrealized gain on investment in NCMI |
|
|
|
|
|
|
|
|
|
|||
Total other expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
(Loss) income before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Income tax (benefit) expense |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Less: Net income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income attributable to Cinemark USA, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying notes, as they relate to Cinemark USA, Inc., are an integral part of the consolidated financial statements.
F-12
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
|
|
Years Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Other comprehensive (loss) income, net of tax |
|
|
|
|
|
|
|
|
|
|||
Unrealized gain (loss) due to fair value adjustments on interest rate swap agreements, net of taxes of $( |
|
|
|
|
|
|
|
|
( |
) |
||
Foreign currency translation adjustments |
|
|
( |
) |
|
|
|
|
|
|
||
Total other comprehensive (loss) income, net of tax |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Total comprehensive (loss) income, net of tax |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Comprehensive income attributable to noncontrolling interests |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Comprehensive (loss) income attributable to Cinemark USA, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying notes, as they relate to Cinemark USA, Inc., are an integral part of the consolidated financial statements.
F-13
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
||||||||||||
. |
|
Class A |
|
|
Class B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Cinemark |
|
|
|
|
|
|
|
||||||||||||||||||
|
|
Common Stock |
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional |
|
|
|
|
|
Other |
|
|
USA, Inc.'s |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
Shares |
|
|
|
|
|
Shares |
|
|
|
|
|
Shares |
|
|
|
|
|
Paid-in- |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholder's |
|
|
Noncontrolling |
|
|
Total |
|
||||||||||||
|
|
Issued |
|
|
Amount |
|
|
Issued |
|
|
Amount |
|
|
Acquired |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
||||||||||||
Balance at January 1, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
$ |
|
|
|
|
||||||
Share-based awards compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Contributions received from parent |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Amortization of accumulated losses for amended swap agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at December 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Share-based awards compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Dividends paid to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Amortization of accumulated losses for amended swap agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance at December 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Share-based awards compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Dividends paid to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Amortization of accumulated gains for amended swap agreements |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at December 31, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
The accompanying notes, as they relate to Cinemark USA, Inc., are an integral part of the consolidated financial statements.
F-14
CINEMARK USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
Years Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Operating activities |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net (loss) income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|||
Depreciation |
|
|
|
|
|
|
|
|
|
|||
Amortization of intangible and other assets |
|
|
|
|
|
|
|
|
|
|||
Loss on debt extinguishment and refinancing |
|
|
|
|
|
|
|
|
|
|||
Amortization of original issue discount and debt issuance costs |
|
|
|
|
|
|
|
|
|
|||
Interest accrued on NCM screen advertising advances |
|
|
|
|
|
|
|
|
|
|||
Amortization of NCM screen advertising advances and other deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of accumulated losses (gains) for amended swap agreements |
|
|
|
|
|
|
|
|
( |
) |
||
Impairment of long-lived and other assets |
|
|
|
|
|
|
|
|
|
|||
Share-based awards compensation expense |
|
|
|
|
|
|
|
|
|
|||
Loss (gain) on disposal of assets and other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Unrealized gain on investment in NCMI |
|
|
|
|
|
|
|
|
( |
) |
||
Non-cash rent expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Equity in loss (income) of affiliates |
|
|
|
|
|
|
|
|
( |
) |
||
Deferred income tax (benefit) expense |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Distributions from equity investees |
|
|
|
|
|
|
|
|
|
|||
Changes in other assets and liabilities |
|
|
|
|
|
|
|
|
|
|||
Inventories |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax receivable |
|
|
|
|
|
|
|
|
( |
) |
||
Prepaid expenses and other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred charges and other assets, net |
|
|
|
|
|
( |
) |
|
|
|
||
Accounts payable and accrued expenses |
|
|
|
|
|
( |
) |
|
|
|
||
Income tax payable |
|
|
( |
) |
|
|
|
|
|
|
||
Liabilities for uncertain tax positions |
|
|
|
|
|
|
|
|
|
|||
Other long-term liabilities |
|
|
( |
) |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|||
Investing activities |
|
|
|
|
|
|
|
|
|
|||
Additions to theatre properties and equipment and other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net proceeds from sale of subsidiary |
|
|
|
|
|
|
|
|
|
|||
Proceeds from sale of assets and other |
|
|
|
|
|
|
|
|
|
|||
Net cash used for investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|||
Proceeds from refinancing of senior secured credit facility |
|
|
|
|
|
|
|
|
|
|||
Repayment of term loan upon refinancing of senior secured credit facility |
|
|
|
|
|
|
|
|
( |
) |
||
Redemption of $ |
|
|
|
|
|
|
|
|
( |
) |
||
Proceeds from issuance of senior notes |
|
|
|
|
|
|
|
|
|
|||
Redemption of senior notes |
|
|
( |
) |
|
|
|
|
|
|
||
Proceeds from other borrowings |
|
|
|
|
|
|
|
|
|
|||
Payment of debt issuance costs |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Fees paid related to debt refinancing |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Contributions received from parent |
|
|
|
|
|
|
|
|
|
|||
Restricted stock withholdings for payroll taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Payments on finance leases |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by (used for) financing activities |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Increase (decrease) in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
|
|
||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|||
Beginning of period |
|
|
|
|
|
|
|
|
|
|||
End of period |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Supplemental information (see Note 19)
The accompanying notes, as they relate to Cinemark USA, Inc., are an integral part of the consolidated financial statements.
F-15
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Principles of Consolidation — The consolidated financial statements include the accounts of Cinemark Holdings, Inc. and its subsidiaries and Cinemark USA, Inc. and its subsidiaries. Majority-owned subsidiaries that Holdings or CUSA, as applicable, has control of are consolidated while those investments in entities of which Holdings or CUSA, as applicable, owns between
Accounts Receivable – Accounts receivable, which are recorded at net realizable value, consist primarily of receivables related to screen advertising, screen rental, receivables related to gift cards sold to third party retail locations, receivables from landlords related to theatre construction projects, rebates earned from the Company’s concession vendors and value-added and other non-income tax receivables.
Inventories — Concession inventories are stated at the lower of cost (first-in, first-out method) or net realizable value.
Theatre Properties and Equipment — Theatre properties and equipment are stated at cost less accumulated depreciation and amortization.
Category |
Useful Life |
Buildings on owned land |
|
Buildings on leased land |
|
Land and buildings under finance leases |
|
Theatre furniture and equipment |
to |
Leasehold improvements |
The Company evaluates long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable (qualitative evaluation). The Company also performs a full quantitative impairment evaluation on an annual basis.
F-16
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
These qualitative and quantitative evaluations are described below:
Goodwill and Other Intangible Assets — 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. which is the U.S. and each of its international countries that has been allocated goodwill (the Company does not have goodwill recorded for all of its international locations). Under ASC Topic 350, Goodwill, Intangibles and Other (“ASC Topic 350”), the Company can elect to perform a qualitative or a quantitative impairment assessment of our goodwill as described below:
Tradename intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. Under ASC Topic 350, the Company can elect to perform a qualitative or quantitative impairment assessment for our tradename intangible assets as described below:
F-17
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The table below summarizes the Company’s intangible assets and the amortization method used for each type of intangible asset:
Intangible Asset |
Amortization Method |
Goodwill |
|
Tradename |
|
Other intangible assets |
Lease Accounting — See Note 4 for discussion of the Company’s lease accounting policies.
Self-Insurance Reserves — In the U.S., the Company is self-insured for general liability claims, which are capped at $
Revenue Recognition — See Note 5 for discussion of revenue recognition and deferred revenue.
Accounting for Share Based Awards — The Company measures the cost of employee services received in exchange for an equity award based on the fair value of the award on the date of the grant. The grant date fair value is based on Holdings’ stock price on the grant date. Such costs are recognized over the period during which an employee is required to provide service in exchange for the award (which is usually the vesting period). At the time of the grant, Holdings also estimates the number of awards that will ultimately be forfeited. Holdings also periodically estimates the number of awards that will ultimately vest based upon the achievement of pre-established Company performance targets on those awards that are both performance-based and time-based. A cumulative expense adjustment is recognized when that estimate changes. See Note 18 for discussion of Holdings’ share based awards and related compensation expense.
F-18
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Income Taxes — The Company uses an asset and liability approach to financial accounting and reporting for income taxes. CUSA participates in the consolidated return of Holdings; however, CUSA’s provisions for income taxes is computed on a stand-alone basis. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not that such assets will be realized. Income taxes are provided on unremitted earnings from foreign subsidiaries unless such earnings are expected to be indefinitely reinvested. Income taxes have also been provided for potential tax assessments. The evaluation of an uncertain tax position is a two-step process. The first step is recognition: The Company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company should presume that the position would be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than
Segments — For the years ended December 31, 2021, 2022 and 2023, the Company managed its business under
Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The Company’s consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.
Foreign Currency Translations — The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded in the consolidated balance sheets in accumulated other comprehensive loss. See Note 16 for a summary of the translation adjustments recorded in accumulated other comprehensive loss for the years ended December 31, 2021, 2022 and 2023. The Company recognizes foreign currency transaction gains and losses when changes in exchange rates impact transactions, other than intercompany transactions of a long-term investment nature, that have been denominated in a currency other than the functional currency.
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 statements of the Company’s Argentina subsidiaries have been remeasured in U.S. dollars in accordance with ASC Topic 830, Foreign Currency Matters, effective beginning July 1, 2018. See further discussion in Note 16.
During 2019, the Argentine government instituted exchange controls restricting the ability of entities and individuals to exchange Argentine pesos for foreign currencies and to remit foreign currency out of Argentina. As a result of these currency exchange controls, markets in Argentina developed a legal trading mechanism known as the Blue Chip Swap that allows entities to transfer U.S. dollars out of and into Argentina. In a Blue Chip Swap transaction, an entity buys U.S. dollar denominated securities in Argentina using Argentine pesos, and subsequently sells the securities for U.S. dollars, in Argentina, to access U.S. dollars locally, or outside Argentina, by transferring the securities abroad, prior to being sold (the latter commonly known as Blue Chip Swap Rate). The Blue Chip Swap rate is the implicit exchange rate resulting from the Blue Chip Swap transaction. The Blue Chip Swap rate can diverge significantly from Argentina’s official exchange rate. See further discussion in Note 16.
F-19
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Interest Rate Swaps – The Company evaluates its interest rate swap agreements, which are designated as cash flow hedges, to determine whether they are effective on a quarterly basis in accordance with ASC Topic 815, Derivatives and Hedging. The fair values of the interest rate swaps are estimated based on future estimated net cash flows considering forecasted interest rates for the terms of the interest rate swap agreements as compared to the fixed interest rates paid under the agreements. If deemed to be effective, fair value estimates are recorded on the consolidated balance sheets as an asset or liability with the related gains or losses reported as a component of accumulated other comprehensive loss. If the swaps are determined to not be effective, the gains or losses are recorded in interest expense on the consolidated income statement. See further discussion in Note 14.
Restructuring Charges – During the year ended December 31, 2020, the Company recorded restructuring charges based on an approved and announced restructuring plan, specifically related to headcount reductions, the permanent closure of underperforming theatres and the write-down of related theatre assets. The costs of the restructuring actions were accrued based on estimates at the time the plan was formalized. Adjustments made to restructuring charges based on actual costs incurred were recorded during the years ended December 31, 2021 and 2022. The balance of accrued and unpaid restructuring charges at December 31, 2022 and 2023 was $
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, (“ASU 2020-04”), ASU 2021-01, Reference Rate Reform (Topic 848): Scope, (“ASU 2021-01”), and ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”). 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 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in ASU 2022-06 deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments in ASU 2020-04 and ASU 2021-01 are effective as of March 12, 2020 through December 31, 2024. The Company applied the optional relief guidance prospectively to the modification of the reference rate in its interest rate swap agreements from LIBOR to Term SOFR during the second quarter of 2023 (see Note 14). The application of the guidance did not have a material impact on the Company’s consolidated financial statements.
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The purpose of ASU 2023-07 is to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses to enable investors to better understand an entity’s overall performance and assess potential future cash flows. In addition, the amendments of ASU 2023-07 enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is in the process of evaluating the impact of adopting the additional disclosure requirements of ASU 2023-07.
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The purpose of ASU 2023-09 is to enhance the transparency and decision usefulness of income tax disclosures to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational
F-20
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
opportunities affect its tax rate and prospects for future cash flows. The amendments in ASU-2023-09 require that public entities, on an annual basis, (i) disclose specific categories in the income tax rate reconciliation and (ii) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pre-tax income or loss by the applicable statutory income tax rate). The amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the impact of adopting ASU 2023-09 on its consolidated financial statements.
The impact of the COVID-19 pandemic had an unprecedented effect on the theatrical exhibition industry. We temporarily closed our theatres in the U.S. and Latin America during March of 2020 at the onset of the COVID-19 outbreak. We reopened theatres as soon as local restrictions and the status of the COVID-19 pandemic would allow. All of our domestic and international theatres were reopened by the end of 2021. After reopening our theatres, we faced ongoing challenges with the significant reduction in the volume of new film releases. The industry has made significant progress in its recovery from the COVID-19 pandemic; however its ongoing recovery continues to be contingent upon several key factors, including the volume of new film content available, which has also been impacted by the recent writers’ and actors’ guild strikes, the box office performance of new film content released, the duration of the exclusive theatrical release window, and evolving consumer behavior with competition from other forms of in-and-out-of-home entertainment.
Government Assistance
During the years ended December 31, 2021 and 2022, the Company received an aggregate of approximately $
Restructuring Charges
In 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 “Restructuring Plan”) in response to the COVID-19 pandemic. The Restructuring Plan primarily included a headcount reduction at its domestic corporate office and the permanent closure of certain domestic and international theatres.
F-21
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The following table summarizes activity recorded during the years ended December 31, 2021 and 2022:
|
|
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 |
|
|||||||||
Reserve balance at January 1, 2021 |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
|||||||||
Amounts paid |
|
|
( |
) |
|
( |
) |
|
( |
) |
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
|
( |
) |
|||
Reserve adjustments (1) |
|
|
( |
) |
|
( |
) |
|
( |
) |
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
|
( |
) |
|||
Reserve balance at December 31, 2021 |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
|||||||||
Amounts paid |
|
|
( |
) |
|
( |
) |
|
( |
) |
|
|
|
|
|
|
|
|
|
( |
) |
|
( |
) |
|
( |
) |
|||
Reserve adjustments (1) |
|
|
|
|
( |
) |
|
( |
) |
|
|
|
|
( |
) |
|
( |
) |
|
|
|
|
( |
) |
|
( |
) |
|||
Reserve balance at December 31, 2022 |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|
$ |
|
|||||||||
Real Estate Leases — The Company conducts a significant part of its theatre operations in leased properties under noncancelable operating and finance leases with base terms generally ranging from
Equipment Leases — The Company leases certain equipment under operating leases, including trash compactors and various other equipment used in the day-to-day operation of its theatres. Certain of the leases require fixed lease payments to be made over the duration of the lease term, while others are variable in nature based on usage or sales. Certain of these leases are month-to-month, while others have noncancelable terms ranging from
F-22
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The following table represents the operating and finance right-of-use assets and lease liabilities as of the periods indicated.
|
|
|
As of |
|
|||||
Leases |
Classification |
|
December 31, 2022 |
|
|
December 31, 2023 |
|
||
Assets (1) |
|
|
|
|
|
|
|
||
Operating lease assets |
Operating lease right-of-use assets |
|
$ |
|
|
$ |
|
||
Theatre properties and equipment, net of accumulated depreciation (2) |
|
|
|
|
|
|
|||
Total lease assets |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
||
Liabilities (1) |
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
||
Operating |
Current portion of operating lease obligations |
|
$ |
|
|
$ |
|
||
Finance |
Current portion of finance lease obligations |
|
|
|
|
|
|
||
Noncurrent |
|
|
|
|
|
|
|
||
Operating |
Operating lease obligations, less current portion |
|
|
|
|
|
|
||
Finance |
Finance lease obligations, less current portion |
|
|
|
|
|
|
||
Total lease liabilities |
|
|
$ |
|
|
$ |
|
||
As of December 31, 2023, the Company had signed lease agreements with total noncancelable lease payments of approximately $
The following table represents the Company’s aggregate lease costs, by lease classification, for the periods indicated.
|
|
Year Ended December 31, |
|
|||||||
Lease Cost |
Classification |
2021 |
|
2022 |
|
2023 |
|
|||
Operating lease costs |
|
|
|
|
|
|
|
|||
Equipment (1) |
Utilities and other |
$ |
|
$ |
|
$ |
|
|||
Real Estate (1) |
Facility lease expense |
|
|
|
|
|
|
|||
Total operating lease costs |
|
$ |
|
$ |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|||
Finance lease costs |
|
|
|
|
|
|
|
|||
Depreciation of leased assets |
Depreciation and amortization |
$ |
|
$ |
|
$ |
|
|||
Interest on lease liabilities |
Interest expense |
|
|
|
|
|
|
|||
Total finance lease costs |
|
$ |
|
$ |
|
$ |
|
|||
|
|
Year Ended December 31, |
|
|||||||
Lease Cost |
Classification |
2021 |
|
2022 |
|
2023 |
|
|||
Operating lease costs |
|
|
|
|
|
|
|
|||
Equipment - Short-term and variable lease payments |
Utilities and other |
$ |
|
$ |
|
$ |
|
|||
Real Estate - Variable lease payments (1) |
Facility lease expense |
$ |
|
$ |
|
$ |
|
|||
Real Estate - Office leases |
General and administrative |
$ |
|
$ |
|
$ |
|
|||
(1) Represents lease payments that are based on a change in index, such as CPI or inflation, variable payments based on revenue or attendance and variable common area maintenance costs.
F-23
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The following table represents the maturity of lease liabilities, by lease classification, as of December 31, 2023.
|
|
Operating |
|
Finance |
|
||
Years Ending |
|
Leases |
|
Leases |
|
||
2024 |
|
$ |
|
$ |
|
||
2025 |
|
|
|
|
|
||
2026 |
|
|
|
|
|
||
2027 |
|
|
|
|
|
||
2028 |
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
||
Total lease payments |
|
$ |
|
$ |
|
||
Less: Interest |
|
|
|
|
|
||
Present value of lease liabilities |
|
$ |
|
$ |
|
||
The following table represents the weighted-average remaining lease term and discount rate, disaggregated by lease classification, as of December 31, 2023.
|
|
As of |
|
|
Lease Term and Discount Rate |
|
December 31, 2023 |
|
|
Weighted-average remaining lease term (years) (1) |
|
|
|
|
Operating leases - equipment |
|
|
|
|
Operating leases - real estate |
|
|
|
|
Finance leases - equipment |
|
|
|
|
Finance leases - real estate |
|
|
|
|
|
|
|
|
|
Weighted-average discount rate (2) |
|
|
|
|
Operating leases - equipment |
|
|
% |
|
Operating leases - real estate |
|
|
% |
|
Finance leases - equipment |
|
|
% |
|
Finance leases - real estate |
|
|
% |
|
The following table represents the minimum cash lease payments included in the measurement of lease liabilities and the non-cash addition of right-of-use assets for the periods presented.
|
|
Year Ended December 31, |
|
|||||||||
Other Information |
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|||
Cash outflows for operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cash outflows for finance leases - operating activities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cash outflows for finance leases - financing activities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Non-cash amount of leased assets obtained in exchange for: |
|
|
|
|
|
|
|
|
|
|||
Operating lease liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Finance lease liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Lessor Arrangements
Under the Company’s Exhibitor Services Agreement (“ESA”) with National CineMedia, LLC (“NCM”), the nonconsecutive periods of use of the theatre screens by NCM qualify as a lease in accordance with ASC Topic 842. See further discussion in Note 9.
F-24
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The Company rents its theatre auditoriums for corporate meetings, screenings, education and training sessions and other private events. These rentals, which are not significant to the Company, are generally one-time events and the related revenue is reflected as other revenue on the consolidated statements of income (loss).
Revenue Recognition Policy
The Company’s patrons have the option to purchase movie tickets well in advance of a movie showtime, right before the movie showtime, or at any point in between those two timeframes depending on seat availability. The Company recognizes such admissions revenue when the showtime for a purchased movie ticket has passed. Concession revenue is recognized when products are sold to the consumer, or if purchased in advance, once the showtime associated with the customer’s movie ticket has passed. Other revenue primarily consists of screen advertising, screen rental revenue, promotional income, studio trailer placements and transactional fees. Except for NCM screen advertising advances discussed below in Note 9, these revenues are generally recognized when the Company has fulfilled its performance obligations by providing the specified services.
The Company sells gift cards and discount ticket vouchers, the proceeds from which are recorded as deferred revenue. Deferred revenue for gift cards and discount ticket vouchers is recognized when they are redeemed for concession items or, if redeemed for movie tickets, when the showtime has passed. The Company generally records breakage revenue on gift cards and discount ticket vouchers based on redemption activity and historical experience with unused balances.
The Company offers a subscription program in the U.S. whereby patrons can pay a monthly or annual fee to receive a monthly credit for use towards a future movie ticket purchase. We also offer monthly subscription fee programs in several of our international locations where customers can pay a monthly fee to receive benefits such as a free monthly ticket. The Company records the subscription program fees as deferred revenue and records admissions revenue 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 fee or award points to customers as purchases are made. For those loyalty programs that have a prepaid annual fee, the Company recognizes the fee collected as other revenue on a straight-line basis over the annual membership period. 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 revenue based on the number of reward points issued to customers and recognizes the deferred revenue 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 generally upon the expiration of loyalty points and subscription credits as the Company does not yet have sufficient historical data related to the redemption patterns for these programs to estimate breakage.
Accounts receivable as of December 31, 2022 and 2023 included approximately $
Disaggregation of Revenue
The following tables present revenue for the periods indicated, disaggregated based on major type of good or service and by reportable operating segment.
|
|
Year Ended December 31, 2023 |
|
|||||||||
|
|
U.S. |
|
|
International |
|
|
|
|
|||
|
|
Operating |
|
|
Operating |
|
|
|
|
|||
Major Goods/Services |
|
Segment (1) |
|
|
Segment |
|
|
Consolidated |
|
|||
Admissions Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Concession Revenue |
|
|
|
|
|
|
|
|
|
|||
Screen advertising, screen rental and promotional revenue |
|
|
|
|
|
|
|
|
|
|||
Other Revenue |
|
|
|
|
|
|
|
|
|
|||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-25
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
|
|
Year Ended December 31, 2022 |
|
|||||||||
|
|
U.S. |
|
|
International |
|
|
|
|
|||
|
|
Operating |
|
|
Operating |
|
|
|
|
|||
Major Goods/Services |
|
Segment (1) |
|
|
Segment |
|
|
Consolidated |
|
|||
Admissions Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Concession Revenue |
|
|
|
|
|
|
|
|
|
|||
Screen advertising, screen rental and promotional revenue |
|
|
|
|
|
|
|
|
|
|||
Other Revenue |
|
|
|
|
|
|
|
|
|
|||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
Year Ended December 31, 2021 |
|
|||||||||
|
|
U.S. |
|
|
International |
|
|
|
|
|||
|
|
Operating |
|
|
Operating |
|
|
|
|
|||
Major Goods/Services |
|
Segment (1) |
|
|
Segment |
|
|
Consolidated |
|
|||
Admissions Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Concession Revenue |
|
|
|
|
|
|
|
|
|
|||
Screen advertising, screen rental and promotional revenue |
|
|
|
|
|
|
|
|
|
|||
Other Revenue |
|
|
|
|
|
|
|
|
|
|||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The following tables present revenue for the periods indicated, disaggregated based on timing of revenue recognition (as discussed above) and by reportable segment.
|
|
Year Ended December 31, 2023 |
|
|||||||||
|
|
U.S. |
|
|
International |
|
|
|
|
|||
|
|
Operating |
|
|
Operating |
|
|
|
|
|||
|
|
Segment (1) |
|
|
Segment |
|
|
Consolidated |
|
|||
Goods and services transferred at a point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Goods and services transferred over time |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
Year Ended December 31, 2022 |
|
|||||||||
|
|
U.S. |
|
|
International |
|
|
|
|
|||
|
|
Operating |
|
|
Operating |
|
|
|
|
|||
|
|
Segment (1) |
|
|
Segment |
|
|
Consolidated |
|
|||
Goods and services transferred at a point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Goods and services transferred over time |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
Year Ended December 31, 2021 |
|
|||||||||
|
|
U.S. |
|
|
International |
|
|
|
|
|||
|
|
Operating |
|
|
Operating |
|
|
|
|
|||
|
|
Segment (1) |
|
|
Segment |
|
|
Consolidated |
|
|||
Goods and services transferred at a point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Goods and services transferred over time |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-26
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Screen Advertising Advances and Other Deferred Revenue
The following table presents changes in the Company’s deferred revenue for the periods indicated:
Deferred Revenue |
|
NCM Screen |
|
|
Other Deferred |
|
||
Balance at January 1, 2022 |
|
$ |
|
|
$ |
|
||
Amounts recognized as accounts receivable |
|
|
|
|
|
|
||
Cash received from customers in advance |
|
|
|
|
|
|
||
Common units received from NCM (see Note 9) |
|
|
|
|
|
|
||
Interest accrued related to significant financing component |
|
|
|
|
|
|
||
Revenue recognized during period |
|
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustments |
|
|
|
|
|
( |
) |
|
Balance at December 31, 2022 |
|
|
|
|
|
|
||
Amounts recognized as accounts receivable |
|
|
|
|
|
|
||
Cash received from customers in advance |
|
|
|
|
|
|
||
Dispositions (1) |
|
|
|
|
|
( |
) |
|
Interest accrued related to significant financing component |
|
|
|
|
|
|
||
Revenue recognized during period |
|
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustments |
|
|
|
|
|
( |
) |
|
Balance at December 31, 2023 |
|
$ |
|
|
$ |
|
||
The table below summarizes the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied for other deferred revenue in the table above as of December 31, 2023 and when the Company expects to recognize this revenue.
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|||||||
Remaining Performance Obligations |
|
|
|
|
|
|
|
Total |
|
|||||||
Other deferred revenue |
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||
F-27
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The following table presents computations of basic and diluted earnings (loss) per share for Holdings under the two class method:
|
|
|
|
|||||||||
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Numerator: |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income attributable to Cinemark Holdings, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Loss (income) allocated to participating share-based awards (1) |
|
|
|
|
|
|
|
|
( |
) |
||
Basic net (loss) income attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Add: Interest expense on convertible notes, net of tax (3) |
|
|
|
|
|
|
|
$ |
|
|||
Diluted net (loss) income attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Denominator: |
|
|
|
|
|
|
|
|
|
|||
Basic weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|||
Common equivalent shares for restricted performance stock units (2) |
|
|
|
|
|
|
|
|
|
|||
Common equivalent shares for convertible notes (3) |
|
|
|
|
|
|
|
|
|
|||
Common equivalent shares for warrants (4) |
|
|
|
|
|
|
|
|
|
|||
Diluted weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Basic (loss) earnings per share attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Diluted (loss) earnings per share attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Share-based awards
Holdings 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 (loss) per share pursuant to the two-class method. Basic earnings (loss) per share for the two classes of stock (common stock and unvested restricted stock) is calculated by dividing net income (loss) by the weighted average number of shares of common stock and unvested restricted stock outstanding during the reporting period. Diluted earnings (loss) 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.
Convertible notes, hedges and warrants
The 4.50% Convertible Senior Notes, discussed further in Note 14, are dilutive in periods in which Holdings has net income. The impact of such dilution on earnings per share is calculated under the if-converted method, which requires that all of the shares of Holdings’ common stock issuable upon conversion of the 4.50% Convertible Senior Notes be included in the calculation of diluted EPS assuming conversion at the beginning of the reporting period.
The closing price of Holdings’ common stock did not exceed the strike price of $
F-28
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
As noted in Note 14, Holdings entered into hedge transactions with counterparties in connection with the issuance of the 4.50% Convertible Senior Notes. The convertible note hedge transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the 4.50% Convertible Senior Notes, the number of shares of Holdings’ common stock underlying the 4.50% Convertible Notes, which initially gives Holdings the option to purchase approximately
The Company suspended its quarterly dividend in March 2020 as a result of the COVID-19 pandemic as discussed in Note 3.
Properties and equipment consisted of the following as of the periods presented:
|
|
|
December 31, |
|
|||||
|
|
|
2022 |
|
|
2023 |
|
||
Theatre properties and equipment |
|
|
|
|
|
|
|
||
Land |
|
|
$ |
|
|
$ |
|
||
Buildings |
|
|
|
|
|
|
|
||
Property under finance lease |
|
|
|
|
|
|
|
||
Theatre furniture and equipment |
|
|
|
|
|
|
|
||
Leasehold interests and improvements |
|
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization (1) |
|
|
|
( |
) |
|
|
( |
) |
Theatre properties and equipment, net |
|
|
$ |
|
|
$ |
|
||
Sale of Subsidiary
During December 2022, the Company entered into a purchase and sale agreement for the sale of the stock of its Ecuador subsidiary. The Company completed the sale in September 2023 and recognized a gain of $
|
December 31, |
|
|||||
|
2022 |
|
|
2023 |
|
||
Theatre property and equipment, net |
$ |
|
|
$ |
|
||
Operating lease right-of-use asset, net |
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
||
|
|
|
|
|
|
||
Total assets |
$ |
|
|
$ |
|
||
Total liabilities |
$ |
|
|
$ |
|
||
F-29
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The table below summarizes total revenue and operating income for the Ecuador subsidiary for the periods presented:
|
|
|
|||||
|
Year Ended December 31, |
|
|||||
|
2022 |
|
|
2023 |
|
||
Total revenue |
$ |
|
|
$ |
|
||
Operating (loss) income |
$ |
( |
) |
|
$ |
|
|
NCM operates a digital in-theatre network in the U.S. for providing cinema advertising. The Company has an investment in NCM’s parent National CineMedia, Inc. (”NCMI”) and previously held an investment in NCM. See further discussion below under Investment in National CineMedia. The Company entered into an Exhibitor Services Agreement with NCM (“ESA”) pursuant to which NCM primarily provides screen advertising to our domestic theatres through its branded “Noovie” pre-show entertainment program. See further discussion below under Exhibitor Services Agreement.
F-30
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Summary of Activity with NCMI/NCM
Below is a summary of activity with NCMI and NCM included in each of Holdings’ and CUSA’s consolidated financial statements for the periods indicated. See Note 5 for discussion of revenue recognition.
|
|
Investment |
|
|
NCM Screen Advertising Advances |
|
|
Distributions from NCM (5) |
|
|
Equity |
|
|
Other Revenue |
|
|
Interest Expense |
|
|
Cash Received |
|
|||||||
Balance as of January 1, 2021 |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Receipt of common units due to annual common unit adjustment |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Screen rental revenues earned under ESA (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
Interest accrued related to significant financing component |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Receipt under tax receivable agreement |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Equity in loss |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of screen advertising advances |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Balance as of and for the year ended December 31, 2021 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Receipt of common units due to annual common unit adjustment |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Screen rental revenues earned under ESA (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
Interest accrued related to significant financing component |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Equity in loss |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Impairment of investment in NCM (2) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization of screen advertising advances |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Balance as of and for the year ended December 31, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Screen rental revenues earned under ESA (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
Interest accrued related to significant financing component |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Redemption of common units of NCM for common stock of NCMI (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Equity in loss (3) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Impairment of investment in NCMI (4) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unrealized gain on fair market value adjustment of investment in NCMI (2) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of screen advertising advances |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
Balance as of and for the year ended December 31, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
F-31
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
In addition to the activity in the table above, the Company made de minimus payments to NCM during the years ended December 31, 2021, 2022 and 2023, respectively, related to certain equipment used for digital advertising, which is included in theatre furniture and equipment on the consolidated balance sheets.
Investment in National CineMedia
On February 13, 2007 NCMI, a holding company that serves as the sole manager of NCM, completed an initial public offering (“IPO”) of its common stock. NCM comprises approximately the entire balance of NCMI’s assets, liabilities and operating cash flows. 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 $
As of January 1, 2023, the Company owned approximately
On February 17, 2023, the Company delivered a redemption notice to NCM pursuant to the redemption right under its operating agreement with NCM to redeem approximately
On April 11, 2023, NCM filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code. NCMI continued to manage NCM, the “debtor in possession,” under the jurisdiction of the bankruptcy court and in accordance with the applicable bankruptcy laws and orders of the bankruptcy court. In general, as debtor in possession under the Bankruptcy Code, NCM was authorized to continue to operate as an ongoing business but could not engage in transactions outside the ordinary course of business without the prior approval of the bankruptcy court.
Due to NCM’s bankruptcy proceedings, the Company reassessed its rights and level of influence over NCM. The Company determined that effective April 11, 2023, the date NCM filed its bankruptcy petition, it no longer had significant influence over NCM and therefore ceased accounting for its investment in NCMI under the equity method of accounting in the second quarter of 2023. During the years ended December 31, 2021 and 2022, and through April 11, 2023, the Company accounted for its investment in NCMI under the equity method of accounting, and therefore assessed its investment for other than temporary impairment during those periods. The Company recorded impairment charges totaling $
On August 3, 2023, NCMI announced that it had effected a 1-for-10 reverse stock split of its common stock. NCMI’s common stock automatically began trading on a split adjusted basis at the opening of the market on August 4, 2023. After giving effect to the reverse stock split, the Company owns approximately
F-32
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Common Unit Adjustments
In addition to the consideration received upon the NCMI IPO and ESA modification in 2007, the Company also periodically receives consideration in the form of common units from NCM. Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCMI and the Company, annual adjustments to the common membership units are made primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by the Company. The common units received are recorded at estimated fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue or NCM screen advertising advances. Through April 11, 2023, the Company’s investment was accounted for under the equity method, with undistributed equity earnings related to its investment included as a component of earnings in equity in income of affiliates or recorded as a reduction of its investment basis depending on the tranche of common units it was related to.
During March 2023, NCM performed its annual common unit adjustment calculation under the Common Unit Adjustment Agreement. As a result of the calculation, the Company was entitled to an additional
Below is a summary of common units received by the Company under the Common Unit Adjustment (“CUA”) Agreement during the years ended December 31, 2021 and 2022:
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Event |
|
Date Common Units Received |
|
Number of Common Units Received |
|
|
Fair Value of Common Units Received (1) |
|
||
2021 annual common unit adjustment |
|
|
|
|
|
$ |
|
|||
2022 annual common unit adjustment |
|
|
|
|
|
$ |
|
|||
(1)
Exhibitor Services Agreement
As previously discussed, the Company’s domestic theatres are part of the in-theatre digital network operated by NCM, the terms of which are defined in the ESA. NCM primarily provides advertising to its theatres through its branded “Noovie” pre-show entertainment program. The Company receives a monthly theatre access fee for participation in the NCM network. Effective September 17, 2019, the Company signed an amendment to the ESA, under which the Company provided incremental advertising time to NCM, and extended the term through
The recognition of revenue related to the NCM screen advertising advances is recorded on a straight-line basis over the new term of the amended ESA through February 2041.
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|||||||||||||||||||
Remaining Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|||||||||||||
NCM screen advertising advances (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Significant Financing Component
As noted above, the Company received approximately $
F-33
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Adjustments above) from NCM in exchange for exclusive access to the Company’s newly opened domestic screens under the ESA. Due to the significant length of time between receiving the consideration from NCM and fulfillment of the related performance obligation, the ESA includes an implied significant financing component, as per the guidance in ASC Topic 606. The interest expense was calculated using the Company’s incremental borrowing rates at the time the cash and each tranche of common units were received from NCM, which ranged from
Summary Financial Information for NCMI/NCM
The tables below present summary financial information for NCMI/NCM for its fiscal periods indicated:
|
|
Year Ended |
|
|
Three Months Ended |
|
||||||
|
|
December 30, 2021 |
|
|
December 29, 2022 |
|
|
March 30, 2023 (1) |
|
|||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Operating income (loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
As of |
|
|||||
|
|
December 29, 2022 |
|
|
March 30, 2023 (1) |
|
||
Current assets |
|
$ |
|
|
$ |
|
||
Noncurrent assets |
|
$ |
|
|
$ |
|
||
Current liabilities |
|
$ |
|
|
$ |
|
||
Noncurrent liabilities |
|
$ |
|
|
$ |
|
||
Members'/Total deficit |
|
$ |
( |
) |
|
$ |
( |
) |
Below is a summary of activity for each of the Company’s affiliates for the periods indicated:
|
|
AC JV, |
|
|
DCDC |
|
|
FE Concepts |
|
|
Other (1) |
|
|
Total |
|
|||||
Balance at January 1, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Equity in income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other (1) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Equity in income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash distributions received |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Other (1) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Equity in income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash distributions received |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Other (1) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
F-34
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
AC JV, LLC
During December 2013, the Company, Regal, AMC (the “AC Founding Members”) and NCM entered into a series of agreements that resulted in the formation of AC JV, LLC (“AC”), a joint venture that owns “Fathom Events” (consisting of Fathom Events and Fathom Consumer Events) formerly operated by NCM. The Fathom Events business focuses on the marketing and distribution of live and pre-recorded entertainment programming to various theatre operators to provide additional programs to augment their feature film schedule. The Company paid event fees to AC of $
Digital Cinema Distribution Coalition
The Company is a party to a joint venture with certain exhibitors and distributors called Digital Cinema Distribution Coalition (“DCDC”). DCDC operates a satellite distribution network that distributes all digital content to U.S. theatres via satellite. The Company has an approximate
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. In December 2019, FE Concepts opened a family entertainment center that offers bowling, gaming, movies and other amenities. The Company and AWSR each invested approximately $
Additional Considerations
F-35
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The Company’s goodwill was as follows for the periods presented:
|
|
U.S. |
|
|
International |
|
|
Total |
|
|||
Balance at December 31, 2021 (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|||
Balance at December 31, 2022 (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Disposition (2) |
|
|
|
|
$ |
( |
) |
|
|
( |
) |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|||
Balance at December 31, 2023 (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Intangible assets activity and balances consisted of the following for the periods indicated:
|
|
Balance at January 1, 2022 |
|
|
Additions |
|
|
Amortization |
|
|
Foreign Currency Translation Adjustments and Other (1) |
|
|
Balance at December 31, 2022 |
|
|||||
Intangible assets with finite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross carrying amount |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Accumulated amortization |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Total intangible assets with finite lives, net |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
Intangible assets with indefinite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Tradename and other |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Total intangible assets, net |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
|
|
Balance at January 1, 2023 |
|
|
Additions (2) |
|
|
Disposals (3) |
|
|
Amortization |
|
|
Foreign Currency Translation Adjustments and Other (4) |
|
|
Balance at December 31, 2023 |
|
||||||
Intangible assets with finite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross carrying amount |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Accumulated amortization |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total intangible assets with finite lives, net |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Intangible assets with indefinite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tradename and other |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
||||
Total intangible assets, net |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
F-36
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Estimated aggregate future amortization expense for intangible assets is as follows:
Year ended December 31, 2024 |
|
$ |
|
|
Year ended December 31, 2025 |
|
|
|
|
Year ended December 31, 2026 |
|
|
|
|
Year ended December 31, 2027 |
|
|
|
|
Year ended December 31, 2028 |
|
|
|
|
Total |
|
$ |
|
The Company reviews for impairment indicators related to its long-lived assets on a quarterly basis and goodwill on an annual basis or whenever events or changes in circumstances indicate the carrying amount of those assets may not be fully recoverable. The Company performed a quantitative impairment analysis on its goodwill, tradename intangible assets and other long-lived assets, including theatre properties and right-of-use assets, as of December 31, 2023. See Note 1 for a discussion of the Company’s impairment policy and a description of qualitative and quantitative impairment assessments.
Below is a summary of impairment charges for the periods indicated:
|
|
Year Ended |
||||
|
|
December 31, |
||||
|
|
2021 |
|
2022 |
|
2023 |
U.S. segment |
|
|
|
|
|
|
Theatre properties |
|
$ |
|
$ |
|
$ |
Theatre operating lease right-of-use assets |
|
|
|
|||
Investment in NCM (1) |
|
|
|
|||
Other |
|
|
|
|||
U.S. total |
|
|
|
|||
|
|
|
|
|
|
|
International segment |
|
|
|
|
|
|
Theatre properties |
|
|
|
|||
Theatre operating lease right-of-use assets |
|
|
|
|||
Intangible assets, net |
|
|
|
|||
International total |
|
|
|
|||
|
|
|
|
|
|
|
Total impairment |
|
$ |
|
$ |
|
$ |
For the years ended December 31, 2021, 2022 and 2023, impairment charges were primarily due to the unprecedented impact of the COVID-19 pandemic on the theatrical exhibition industry and its ongoing recovery, as discussed in Note 3.
Accrued other current liabilities consisted of the following as of the periods presented:
|
|
December 31, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Gift card liability (1) |
|
$ |
|
|
$ |
|
||
Subscription membership program liability (1) |
|
|
|
|
|
|
||
Discount vouchers liability (1) |
|
|
|
|
|
|
||
Other (2) |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
F-37
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Long-term debt of Holdings and CUSA consisted of the following for the periods presented:
|
|
December 31, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Cinemark Holdings, Inc. 4.50% convertible senior notes due 2025 |
|
$ |
|
|
$ |
|
||
Cinemark USA, Inc. term loan due 2030 (see Senior Secured Credit Facility below) |
|
|
|
|
|
|
||
Cinemark USA, Inc. 8.75% senior secured notes due 2025 |
|
|
|
|
|
|
||
Cinemark USA, Inc. 5.875% senior notes due 2026 |
|
|
|
|
|
|
||
Cinemark USA, Inc. 5.25% senior notes due 2028 |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total long-term debt carrying value (1) |
|
$ |
|
|
$ |
|
||
Less: Current portion |
|
|
|
|
|
|
||
Less: Debt issuance costs and original issue discount, net of accumulated amortization (1) |
|
|
|
|
|
|
||
Long-term debt, less current portion, net of unamortized debt issuance costs and original issue discount (1) |
|
$ |
|
|
$ |
|
||
(1)
|
|
December 31, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Total long-term debt carrying value |
|
$ |
|
|
$ |
|
||
Less: Current portion |
|
|
|
|
|
|
||
Less: Debt issuance costs, net of accumulated amortization and original issue discount |
|
|
|
|
|
|
||
Long-term debt, less current portion, net of unamortized debt issuance costs and original issue discount |
|
$ |
|
|
$ |
|
||
Fair Value of Long Term Debt
The Company estimates the fair value of its long-term debt primarily using quoted market prices, which fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35. The carrying value of the Company’s long term debt as of December 31, 2022 and 2023 is shown in the table above.
|
|
As of |
|
|||||
|
|
December 31, 2022 |
|
|
December 31, 2023 |
|
||
Holdings fair value (1) |
|
$ |
|
|
$ |
|
||
CUSA fair value |
|
$ |
|
|
$ |
|
||
4.50% Convertible Senior Notes
On August 21, 2020, Holdings issued $
Holders of the 4.50% Convertible Senior Notes may convert their 4.50% Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding May 15, 2025 only under the following circumstances:
F-38
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
warrants to purchase the same with a per share value exceeding 10% of the trading price of Holdings’ stock, (3) upon the occurrence of specified corporate events as described further in the indenture, or (4) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of Holdings’ common stock for at least
The initial conversion rate is
The 4.50% Convertible Senior Notes are effectively subordinated to any of Holdings’, or its subsidiaries’, existing and future secured debt to the extent of the value of the assets securing such indebtedness, including obligations under the Credit Agreement. The 4.50% Convertible Senior Notes are structurally subordinated to all existing and future debt and other liabilities of our subsidiaries, including trade payables, and including CUSA’s 5.125% Senior Notes, 4.875% Senior Notes and the 8.75% Secured Notes, or, collectively, CUSA’s senior notes (but excluding all obligations under the Credit Agreement which are guaranteed by Holdings). The 4.50% Convertible Senior Notes rank equally in right of payment with all of Holdings’ existing and future unsubordinated debt, including all obligations under the Credit Agreement, which such Credit Agreement is guaranteed by Holdings, and senior in right of payment to any future debt that is expressly subordinated in right of payment to the 4.50% Convertible Senior Notes. The 4.50% Convertible Notes are not guaranteed by any of Holdings’ subsidiaries.
Concurrently with the issuance of the
Together, the Hedge Transactions and the Warrants are intended to reduce the potential dilution from the conversion of the 4.50% Convertible Senior Notes. The Hedge Transactions and Warrants are recorded in equity and are not accounted for as derivatives, in accordance with applicable accounting guidance.
Senior Secured Credit Facility
On May 26, 2023, CUSA amended and restated its senior secured credit facility (the “Credit Agreement”) to provide for an aggregate principal amount of $
F-39
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
under the Credit Agreement prior to such date. The revolving credit facility is subject to springing maturity dates of January 30, 2025, December 14, 2025 and April 15, 2028 if CUSA’s
CUSA used the $
Under the Credit Agreement, quarterly principal payments of $
The amended term loan was issued net of an original issue discount of $
Interest on the term loan accrues, at CUSA's option, at either (i) a rate determined by reference to the secured overnight financing rate ("SOFR") as published by CME Group Benchmark Administration Limited and identified by Barclay's Bank PLC (the Administrative Agent) as the forward-looking term rate based on
Interest on revolving credit loans accrues, at CUSA's option, at either (i) the Term SOFR Rate plus an applicable margin that ranges from
CUSA’s obligations under the Credit Agreement are guaranteed by Holdings and certain subsidiaries of Holdings other than CUSA (the “Other Guarantors”) and are secured by security interests in substantially all of CUSA’s, Holdings’ and the Other Guarantors’ personal property.
The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on the ability of Holdings, CUSA and their subsidiaries to: merge, consolidate, liquidate, or dissolve; sell, transfer or otherwise dispose of assets; create, incur or permit to exist certain indebtedness and liens; pay dividends, repurchase stock and make other Restricted Payments (as defined in the Credit Agreement); prepay certain indebtedness; make investments; enter into transactions with affiliates; and change the nature of their business. At any time that CUSA has revolving credit loans outstanding, it is not permitted to allow the Consolidated Net Senior Secured Leverage Ratio to exceed
F-40
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The Credit Agreement also includes customary events of default, including, among other things, payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, a change of control, material money judgments and failure to maintain security interests. If an event of default occurs, all commitments under the Credit Agreement may be terminated and all obligations under the Credit Agreement could be accelerated by the Lenders, causing all loans outstanding (including accrued interest and fees payable thereunder) to be declared immediately due and payable.
The Restricted Payments covenant, as defined in the Credit Agreement generally does not limit the ability of Holdings and its subsidiaries to pay dividends and make other Restricted Payments if the Consolidated Net Total Leverage Ratio (as defined in the Credit Agreement) is less than or equal to
5.875% Senior Notes
On March 16, 2021, CUSA issued $
The 5.875% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of CUSA’s subsidiaries that guarantee, assume or become liable with respect to any of CUSA’s or a guarantor’s debt. The 5.875% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of CUSA’s and its guarantor’s existing and future senior debt and are senior in right of payment to all of CUSA’s and its guarantors’ existing and future senior subordinated debt. The 5.875% Senior Notes and the guarantees are effectively subordinated to all of CUSA’s and its guarantor’s existing and future secured debt to the extent of the value of the collateral securing such debt, including all borrowings under CUSA’s Credit Agreement. The 5.875% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of CUSA’s subsidiaries that do not guarantee the 5.875% Senior Notes.
The indenture to the 5.875% Senior Notes contains covenants that limit, among other things, the ability of CUSA 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, CUSA would be required to make an offer to repurchase the 5.875% Senior Notes at a price equal to
Cinemark USA, Inc. may redeem the 5.875% Senior Notes in whole or in part at redemption prices specified in the indenture.
5.25% Senior Notes
On June 15, 2021, CUSA issued $
F-41
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
on
The 5.25% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of CUSA’s subsidiaries that guarantee, assume or become liable with respect to any of CUSA’s or a guarantor’s debt. The 5.25% Senior Notes and the guarantees will be CUSA’s and the guarantors’ senior unsecured obligations and (i) rank equally in right of payment to CUSA’s and the guarantors’ existing and future senior debt, including borrowings under CUSA’s Credit Agreement (as defined below) and CUSA’s existing senior notes, (ii) rank senior in right of payment to CUSA’s and the guarantors’ future subordinated debt, (iii) are effectively subordinated to all of CUSA’s and the guarantors’ existing and future secured debt, including all obligations under the Credit Agreement and CUSA’s
The indenture to the 5.25% Senior Notes contains covenants that limit, among other things, the ability of CUSA 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, CUSA would be required to make an offer to repurchase the 5.25% Senior Notes at a price equal to
Prior to July 15, 2024, CUSA may redeem all or any part of the 5.25% Senior Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the 5.25% Senior Notes to the date of redemption. On or after July 15, 2024, CUSA may redeem the 5.25% Senior Notes in whole or in part at redemption prices specified in the indenture. In addition, prior to July 15, 2024, CUSA may redeem up to 40% of the aggregate principal amount of the 5.25% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture, so long as at least 60% of the principal amount of the 5.25% Senior Notes remains outstanding immediately after each such redemption.
8.75% Secured Notes
On April 20, 2020, CUSA issued $
CUSA may redeem the 8.75% Secured Notes in whole or in part at redemption prices specified in the indenture. Prior to May 1, 2024, CUSA, Inc. may redeem all or any part of the 8.75% Senior Notes at its option at
On May 1, 2023, CUSA redeemed $
The 8.75% Secured Notes are fully and unconditionally guaranteed on a joint and several senior basis by certain of CUSA’s subsidiaries that guarantee, assume or in any other manner become liable with respect to any of CUSA’s or its guarantors’ other debt. If CUSA cannot make payments on the 8.75% Secured Notes when they are due, CUSA’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 8.75% Secured Notes.
F-42
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The indenture governing the 8.75% Secured Notes contains covenants that limit, among other things, the ability of CUSA 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
4.875% Senior Notes
On May 21, 2021, Cinemark USA, Inc. issued a conditional notice of optional redemption to redeem the $
The Company recorded a loss on extinguishment of debt of $
5.125% Senior Notes
On March 16, 2021, CUSA completed a tender offer to purchase its previously outstanding 5.125% Senior Notes, of which $
The Company recorded a loss on extinguishment of debt of $
Additional Borrowings of International Subsidiaries
During the years ended December 31, 2020 and 2021, certain of CUSA’s international subsidiaries borrowed an aggregate of $
Covenant Compliance
The indentures governing the 5.875% Senior Notes, the 5.25% Senior Notes and the 8.750% Secured Notes ("the indentures") contain 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. As of December 31, 2023, Cinemark USA, Inc. could have distributed up to approximately $
F-43
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
indentures. Upon a change of control, as defined in the indentures, Cinemark USA, Inc. would be required to make an offer to repurchase the 5.875% Senior Notes, the 5.25% Senior Notes and the 8.750% Secured Notes at a price equal to
See discussion of dividend restrictions and the consolidated net senior secured leverage ratio under the Credit Agreement at Senior Secured Credit Facility above.
As of December 31, 2023, the Company believes it was in full financial compliance with all agreements, including related covenants, governing its outstanding debt.
Debt Maturity
Holdings' long-term debt, excluding unamortized debt issuance costs, at December 31, 2023 matures as follows:
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total (1) |
|
$ |
|
Interest Rate Swap Agreements
Effective May 31, 2023, in conjunction with the amendment of its Credit Agreement, the Company amended its
Effective November 30, 2023, the Company amended and extended its then existing $
Approximately $
The fair values of the interest rate swaps are recorded on the Company’s consolidated balance sheets 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 and under this approach, the Company uses projected future interest rates as provided by counterparty to the interest rate swap agreement and the fixed rates that the Company is obligated to pay under the agreement. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 2 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35.
F-44
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Below is a summary of the Company’s interest rate swap agreements designated as cash flow hedges as of December 31, 2023:
|
|
|
|
|
|
|
|
|
Estimated |
|
||
|
|
|
|
|
|
|
|
|
Fair Value at |
|
||
Notional |
|
|
|
|
|
|
|
|
December 31, |
|
||
Amount |
|
|
Pay Rate |
|
Receive Rate |
|
Expiration Date |
|
2023 (1) |
|
||
$ |
|
(2) |
|
|
|
$ |
|
|||||
$ |
|
(3) |
|
|
|
|
|
|||||
$ |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
Total |
|
$ |
|
||
The Company determines fair value measurements in accordance with FASB 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 FASB 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.
F-45
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Below is a summary of assets measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of the periods presented:
|
|
As of |
|
Carrying |
|
|
Fair Value |
|
||||||||||
Description |
|
December 31, |
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Interest rate swap assets (1) |
|
2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap assets (1) |
|
2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Investment in NCMI (2) |
|
2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1)
(2)
The Company also uses the market and income approach for fair value measurements on a nonrecurring basis in the impairment evaluations of its long-lived assets (see Note 1 and Note 12). Additionally, the Company uses the market approach to estimate the fair value of its long-term debt (see Note 14). There were no changes in valuation techniques during the period. There were
The accumulated other comprehensive loss account in Holdings’ stockholders’ equity of $
As of December 31, 2023, all foreign countries where the Company has operations are non-highly inflationary, other than Argentina. In non-highly inflationary countries, the local currency is the same as the functional currency and 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
During 2019, the Argentine government instituted exchange controls restricting the ability of entities and individuals to exchange Argentine pesos for foreign currencies and to remit foreign currency out of Argentina. As a result of these currency exchange controls, markets in Argentina developed a legal trading mechanism known as the Blue Chip Swap that allows entities to transfer U.S. dollars out of and into Argentina. In a Blue Chip Swap transaction, an entity buys U.S. dollar denominated securities in Argentina using Argentine pesos, and subsequently sells the securities for U.S. dollars, in Argentina, to access U.S. dollars locally, or outside of Argentina, by transferring the securities abroad, prior to being sold (the latter commonly known as Blue Chip Swap Rate). The Blue Chip Swap rate is the implicit exchange rate resulting from the Blue Chip Swap transaction. The Blue Chip Swap rate can diverge significantly from Argentina’s official exchange rate. During the year ended December 31, 2023, the Company entered into Blue Chip Swap transactions that resulted in a loss of approximately $
F-46
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Below is a summary of the impact of translating the financial statements of the Company’s international subsidiaries for the periods presented.
|
|
|
|
|
|
|
|
|
Other Comprehensive |
|
||||||||||||
|
|
|
|
|
|
|
|
|
Income (Loss) |
|
||||||||||||
|
|
Exchange Rate as of December 31, |
|
|
Year Ended December 31, |
|
||||||||||||||||
Country |
|
2021 |
|
2022 |
|
2023 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
||||||
Brazil |
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Colombia |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Chile |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Peru |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
All other |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
As noted above, beginning July 1, 2018, Argentina was deemed highly inflationary. The impact of translating Argentina’s financial results to U.S. dollars, subsequent to June 30, 2018, has been recorded in foreign currency exchange gain (loss) on the Company’s consolidated statements of income (loss). A foreign currency exchange gain (loss) of $
Noncontrolling interests in subsidiaries of the Company were as follows as of the periods presented:
|
|
December 31, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Cinemark Partners II |
|
$ |
|
|
$ |
|
||
Laredo Theatres |
|
|
|
|
|
|
||
Greeley Ltd. |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
There were
Common Stock - Holdings
Common stockholders are entitled to vote on all matters submitted to a vote of the Holdings’ stockholders. Subject to the rights of holders of any then outstanding shares of Holdings’ preferred stock, Holdings’ common stockholders are entitled to dividends declared by Holdings’ board of directors. The shares of the Holdings’ common stock are not subject to any redemption provisions. Holdings has
Holdings’ ability to pay dividends is effectively limited by its status as a holding company and the terms of CUSA’s indentures and senior secured credit facility, which also significantly restricts the ability of certain of CUSA’s subsidiaries to pay dividends directly or indirectly to Holdings. See Note 14 for discussion of restrictions contained within the debt agreements of CUSA.
F-47
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Treasury Stock - Holdings
Treasury stock represents shares of common stock repurchased by Holdings and not yet retired. Holdings has applied the cost method in recording its treasury shares.
|
Number of |
|
|
Cost |
|
||
Balance at January 1, 2021 |
|
|
|
$ |
|
||
Restricted stock withholdings (1) |
|
|
|
|
|
||
Restricted stock forfeitures (2) |
|
|
|
|
|
||
Balance at December 31, 2021 |
|
|
|
$ |
|
||
Restricted stock withholdings (1) |
|
|
|
|
|
||
Restricted stock forfeitures (2) |
|
|
|
|
|
||
Balance at December 31, 2022 |
|
|
|
$ |
|
||
Restricted stock withholdings (1) |
|
|
|
|
|
||
Restricted stock forfeitures (2) |
|
|
|
|
|
||
Balance at December 31, 2023 |
|
|
|
$ |
|
||
|
|
Year Ended December 31, |
||||
|
|
2021 |
|
2022 |
|
2023 |
Market Values |
|
$ |
|
$ |
|
$ |
As of December 31, 2023, Holdings had no plans to retire any shares of its treasury stock.
Common and Preferred Stock - CUSA
CUSA has
CUSA has
CUSA’s ability to pay dividends is effectively limited by the terms of its indentures and its senior secured credit facility, which also significantly restricts the ability of certain of CUSA’s subsidiaries to pay dividends directly or indirectly to it. See Note 14 for a discussion of restrictions contained within CUSA’s debt agreements.
Restricted Stock
Below is a summary of restricted stock activity for the years ended December 31, 2021, 2022 and 2023:
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|||||||||||||||
|
|
December 31, 2021 |
|
|
December 31, 2022 |
|
|
December 31, 2023 |
|
|||||||||||||||
|
|
Shares of |
|
|
Weighted |
|
|
Shares of |
|
|
Weighted |
|
|
Shares of |
|
|
Weighted |
|
||||||
Outstanding at January 1 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Granted |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Vested |
|
|
( |
) |
|
$ |
|
|
|
( |
) |
|
$ |
|
|
|
( |
) |
|
$ |
|
|||
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
( |
) |
|
$ |
|
|
|
( |
) |
|
$ |
|
|||
Outstanding at December 31 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
F-48
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
During the year ended December 31, 2023, Holdings granted
Below is a summary of restricted stock award activity recorded for the periods indicated.
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Compensation expense recognized during the period: |
|
|
|
|
|
|
|
|
|
|||
CUSA employees (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Holdings directors |
|
|
|
|
|
|
|
|
|
|||
Total recognized by Holdings |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Fair value of vested restricted stock held by: |
|
|
|
|
|
|
|
|
|
|||
CUSA employees |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Holdings directors |
|
|
|
|
|
|
|
|
|
|||
Holdings total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Income tax benefit recognized upon vesting of restricted stock |
|
|
|
|
|
|
|
|
|
|||
CUSA employees |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Holdings directors |
|
|
|
|
|
|
|
|
|
|||
Holdings total income tax benefit |
|
$ |
|
|
$ |
|
|
$ |
|
|||
As of December 31, 2023, the estimated remaining unrecognized compensation expense related to the unvested restricted stock awards was as follows:
|
|
Estimated |
|
|
|
|
Remaining |
|
|
|
|
Expense |
|
|
CUSA employees (1) |
|
$ |
|
|
Holdings directors |
|
|
|
|
Total remaining - Holdings (1) |
|
$ |
|
|
(1)
Performance Stock Units
Holdings granted performance awards in the form of performance stock units (“PSUs”), formerly referred to as restricted stock units, in 2020, 2022 and 2023. Based upon the terms of the award agreements, the performance stock units vest based on a combination of financial performance factors and continued service.
The financial performance factors for the performance stock units have a threshold, target and maximum level of payment opportunity and vest on a prorata basis according to the performance level achieved by the Company during the performance period against the performance goals. At the time of the performance stock unit grants, the Company assumes the financial performance target will be reached for the defined measurement period in determining the amount of compensation expense to record for such grants. If and when additional information becomes available to indicate that something other than the target level will be achieved, the Company adjusts compensation expense on a prospective basis over the remaining service period.
Grantees of performance stock units are eligible to receive a ratable portion of the common stock issuable if the achievement of the performance goals is within the targets previously noted. All performance stock units granted will be paid in the form of Holdings’ common stock if the participant continues to provide services through the third anniversary of the respective grant date. Performance stock unit award participants are eligible to receive dividend
F-49
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
equivalent payments from the grant date to the extent declared by Holdings if, and at the time, the performance stock unit awards vest.
2023 awards - During the year ended December 31, 2023, Holdings granted performance awards in the form of performance stock units. Each PSU that vests will result in the issuance of one share of Holdings’ common stock. The maximum number of shares issuable under the performance awards granted during 2023 is approximately
Performance Measurement Period |
|
|
Maximum Performance Target Level |
|
|
Percentage of maximum performance stock units that vest if performance metrics meet the threshold level (1) |
|
|
Percentage of maximum performance stock units that vest if performance metrics are at target (1) |
|
|
Percentage of maximum performance stock units that vest if performance metrics are at the maximum (1) |
|
|
Most likely performance metrics outcome estimated to be achieved at the time performance stock units were issued |
|
|
Assumed forfeiture rate for performance stock unit awards |
|
2022 awards - During the year ended December 31, 2022, Holdings granted performance awards in the form of performance stock units. The maximum number of shares issuable under the performance awards granted during 2022 is
2021 awards -There were no performance stock awards granted during the year ended December 31, 2021. During the year ended December 31, 2021, the Compensation Committee of Holdings’ Board of Directors (“Compensation Committee”) evaluated the impact of the COVID-19 pandemic on the performance metric used for the performance stock unit awards granted during 2019 and 2020 and determined that the COVID-19 pandemic significantly impacted Holdings’ ability to meet the performance metric. The Compensation Committee made a discretionary decision to certify the vest of the 2019 and 2020 performance stock unit awards at target based upon the unforeseen, external circumstances that were beyond management’s control, the projected macroeconomic conditions through 2021 and beyond, and the uncertain timing as to the recovery of the Company’s industry. The requirement to satisfy the applicable service period under the performance stock unit awards was not changed. In addition, the Compensation Committee determined that it would not be appropriate to issue performance awards during 2021 due to the aforementioned macroeconomic conditions and industry recovery. In lieu of performance stock units, the Compensation Committee granted restricted stock with a four-year vest period.
F-50
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Below is a summary of performance stock unit activity for the periods presented:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Number of performance stock unit awards that vested during the period |
|
|
|
|
|
|
|
|
|
|||
Fair value of performance stock unit awards that vested during the period |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Accumulated dividends paid upon vesting of performance stock unit awards |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Compensation expense recognized during the period (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Income tax benefit (expense) related to stock unit awards |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
As of December 31, 2023, the estimated remaining unrecognized compensation expense related to the outstanding performance stock unit awards was $
The following is provided as supplemental information to the consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|||
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Cash paid for interest by Holdings (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cash paid for interest by CUSA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
(Refunds received) cash paid for income taxes, net |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
Cash deposited in (transferred from) restricted accounts (2) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Noncash operating activities: |
|
|
|
|
|
|
|
|
|
|||
Interest expense - NCM (see Note 9) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Noncash investing activities: |
|
|
|
|
|
|
|
|
|
|||
Change in accounts payable and accrued expenses for the acquisition of theatre properties and equipment (3) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Theatre properties acquired under finance leases |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Investment in NCMI/NCM – receipt of common units (see Note 9) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Holdings
The provision for federal and foreign income tax expense for continuing operations of Holdings consisted of the following:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
(Loss) income before income taxes: |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Foreign |
|
|
( |
) |
|
|
|
|
|
|
||
Total |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
F-51
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Current and deferred income taxes for Holdings were as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Foreign |
|
|
|
|
|
|
|
|
|
|||
State |
|
|
|
|
|
|
|
|
|
|||
Total current expense |
|
|
|
|
|
|
|
|
|
|||
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Foreign |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
State |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Total deferred taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Income taxes |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
A reconciliation between Holdings’ income tax expense and taxes computed by applying the applicable statutory federal income tax rate to income before income taxes is as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Computed statutory tax expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
State and local income taxes, net of federal income tax impact |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Changes in valuation allowance |
|
|
|
|
|
|
|
|
( |
) |
||
Foreign tax rate differential |
|
|
( |
) |
|
|
|
|
|
|
||
Foreign tax credits |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Changes in uncertain tax positions |
|
|
|
|
|
|
|
|
( |
) |
||
U.S. tax impact of foreign operations |
|
|
|
|
|
( |
) |
|
|
|
||
Return to provision |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Expiration of attribute carryforwards |
|
|
|
|
|
|
|
|
|
|||
Permanent differences |
|
|
|
|
|
|
|
|
|
|||
Other, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Income taxes |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||
CUSA
The provision for federal and foreign income tax expense for continuing operations of CUSA consisted of the following:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
(Loss) income before income taxes: |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Foreign |
|
|
( |
) |
|
|
|
|
|
|
||
Total |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
F-52
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Current and deferred income taxes for CUSA were as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Foreign |
|
|
|
|
|
|
|
|
|
|||
State |
|
|
|
|
|
|
|
|
|
|||
Total current expense |
|
|
|
|
|
|
|
|
|
|||
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Foreign |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
State |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Total deferred taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
A reconciliation between CUSA’s income tax expense and taxes computed by applying the applicable statutory federal income tax rate to income before income taxes is as follows:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Computed statutory tax expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
State and local income taxes, net of federal income tax impact |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Changes in valuation allowance |
|
|
|
|
|
|
|
|
( |
) |
||
Foreign tax rate differential |
|
|
( |
) |
|
|
|
|
|
|
||
Foreign tax credits |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Changes in uncertain tax positions |
|
|
|
|
|
|
|
|
( |
) |
||
U.S. tax impact of foreign operations |
|
|
|
|
|
( |
) |
|
|
|
||
Return to provision |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Expiration of attribute carryforwards |
|
|
|
|
|
|
|
|
|
|||
Permanent differences |
|
|
|
|
|
|
|
|
|
|||
Other, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
.
As of December 31, 2023, the Company will not indefinitely reinvest $
F-53
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
Deferred Income Taxes
Holdings
The tax effects of significant temporary differences and tax loss and tax credit carryforwards comprising the net long-term deferred income tax liabilities for Holdings as of the periods presented consisted of the following:
|
|
December 31, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Deferred liabilities: |
|
|
|
|
|
|
||
Theatre properties and equipment |
|
$ |
|
|
$ |
|
||
Finance lease assets |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Intangible asset – other |
|
|
|
|
|
|
||
Intangible asset – tradenames |
|
|
|
|
|
|
||
Total deferred liabilities |
|
|
|
|
|
|
||
Deferred assets: |
|
|
|
|
|
|
||
Deferred revenue – NCM and Other |
|
|
|
|
|
|
||
Prepaid rent |
|
|
|
|
|
|
||
Gift cards |
|
|
|
|
|
|
||
Investment in partnerships |
|
|
|
|
|
|
||
Operating lease obligations |
|
|
|
|
|
|
||
Finance lease obligations |
|
|
|
|
|
|
||
Tax impact of items in accumulated other comprehensive income and additional paid-in-capital |
|
|
|
|
|
|
||
Restricted stock |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Other tax loss carryforwards |
|
|
|
|
|
|
||
Other tax credit and attribute carryforwards |
|
|
|
|
|
|
||
Other expenses, not currently deductible for tax purposes |
|
|
|
|
|
|
||
Total deferred assets |
|
|
|
|
|
|
||
Net deferred income tax (asset) liability before valuation allowance |
|
|
( |
) |
|
|
( |
) |
Valuation allowance against deferred assets – non-current |
|
|
|
|
|
|
||
Net deferred income tax liability |
|
$ |
|
|
$ |
|
||
Net deferred tax (asset) liability – Foreign |
|
$ |
|
|
$ |
( |
) |
|
Net deferred tax liability – U.S. |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
F-54
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
CUSA
The tax effects of significant temporary differences and tax loss and tax credit carryforwards comprising the net long-term deferred income tax liabilities for CUSA as of the periods presented consisted of the following:
|
|
December 31, |
|
|||||
|
|
2022 |
|
|
2023 |
|
||
Deferred liabilities: |
|
|
|
|
|
|
||
Theatre properties and equipment |
|
$ |
|
|
$ |
|
||
Finance lease assets |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Intangible asset – other |
|
|
|
|
|
|
||
Intangible asset – tradenames |
|
|
|
|
|
|
||
Tax impact of items in accumulated other comprehensive income and additional paid-in-capital |
|
|
|
|
|
|
||
Total deferred liabilities |
|
|
|
|
|
|
||
Deferred assets: |
|
|
|
|
|
|
||
Deferred revenue – NCM and Other |
|
|
|
|
|
|
||
Prepaid rent |
|
|
|
|
|
|
||
Gift Cards |
|
|
|
|
|
|
||
Investment in partnerships |
|
|
|
|
|
|
||
Operating lease obligations |
|
|
|
|
|
|
||
Finance lease obligations |
|
|
|
|
|
|
||
Restricted stock |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Other tax loss carryforwards |
|
|
|
|
|
|
||
Other tax credit and attribute carryforwards |
|
|
|
|
|
|
||
Other expenses, not currently deductible for tax purposes |
|
|
|
|
|
|
||
Total deferred assets |
|
|
|
|
|
|
||
Net deferred income tax (asset) liability before valuation allowance |
|
|
( |
) |
|
|
( |
) |
Valuation allowance against deferred assets – non-current |
|
|
|
|
|
|
||
Net deferred income tax liability |
|
$ |
|
|
$ |
|
||
Net deferred tax (asset) liability – Foreign |
|
$ |
|
|
$ |
( |
) |
|
Net deferred tax liability – U.S. |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Federal net operating losses and interest expense limitation carryforwards have an indefinite carryforward period. Foreign net operating losses have varying carryforward periods with some being indefinite. Similarly, state net operating losses have varying carryforward periods with some being indefinite. Foreign tax credits have a
The Company assesses the likelihood that it will be able to recover its deferred tax assets against future sources of taxable income and reduces the carrying amounts of deferred tax assets by recording a valuation allowance, if, based on all available evidence, the Company believes it is more likely than not that all or a portion of such assets will not be realized. As of the year ended December 31, 2023,
The Company has established a valuation allowance against certain deferred tax assets for which the ultimate realization of future benefits is uncertain. Expiring carryforwards and the required valuation allowances are adjusted annually. After application of the valuation allowances described above, the Company anticipates that no limitations will apply with respect to utilization of any of the other deferred tax assets described above.
F-55
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The Company’s valuation allowance changed from $
Holdings’ valuation allowance for deferred tax assets, which includes CUSA’s valuation allowance for deferred tax assets, and CUSA’s valuation for deferred tax assets, for the periods presented were as follows:
|
|
Valuation Allowance for Deferred Taxes |
|
||||
|
|
Holdings |
|
CUSA |
|
||
Balance at January 1, 2021 |
|
$ |
|
$ |
|
||
Additions |
|
|
|
|
|
||
Deductions |
|
|
( |
) |
|
( |
) |
Currency translation |
|
|
( |
) |
|
( |
) |
Balance at December 31, 2021 |
|
$ |
|
$ |
|
||
Additions |
|
|
|
|
|
||
Deductions |
|
|
( |
) |
|
( |
) |
Currency translation |
|
|
|
|
|
||
Balance at December 31, 2022 |
|
$ |
|
$ |
|
||
Additions |
|
|
|
|
|
||
Deductions |
|
|
( |
) |
|
( |
) |
Currency translation |
|
|
|
|
|
||
Balance at December 31, 2023 |
|
$ |
|
$ |
|
||
Uncertain Tax Positions
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties for Holdings for the periods presented:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Balance at January 1, |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Gross increases - tax positions in prior periods |
|
|
|
|
|
|
|
|
|
|||
Gross decreases - tax positions in prior periods |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gross increases - current period tax positions |
|
|
|
|
|
|
|
|
|
|||
Statute of limitations expiration |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at December 31, |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties for CUSA for the periods presented:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Balance at January 1, |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Gross increases - tax positions in prior periods |
|
|
|
|
|
|
|
|
|
|||
Gross decreases - tax positions in prior periods |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Gross increases - current period tax positions |
|
|
|
|
|
|
|
|
|
|||
Statute of limitations expiration |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at December 31, |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Holdings had $
F-56
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
tax benefits that, if recognized, would impact the effective income tax rate for the years ended December 31, 2022 and 2023, respectively. Holdings and CUSA had $
The Company prepares and files income tax returns based upon its interpretation of tax laws and regulations and record estimates based upon these judgments and interpretations. In the normal course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law resulting from legislation, regulation, and/or as concluded through the various jurisdictions' tax court systems. Significant judgment is exercised in applying complex tax laws and regulations across multiple global jurisdictions where we conduct our operations. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, including resolutions of any related appeals or litigation processes, based upon the technical merits of the position.
The Company is no longer subject to income tax audits from the Internal Revenue Service for years before 2018. The Company is no longer subject to state income tax examinations by tax authorities in its major state jurisdictions for years before 2019. The Company is no longer subject to non-U.S. income tax examinations by tax authorities in its major non-U.S. tax jurisdictions for years before 2008.
Employment Agreements — As of December 31, 2023, the Company had employment agreements with Sean Gamble, Melissa Thomas, Valmir Fernandes and Michael Cavalier. These employment agreements are subject to automatic extensions for a
Retirement Savings Plan — The Company has a 401(k) retirement savings plan (“401(k) Plan”) for the benefit of all eligible U.S. based employees and makes discretionary matching contributions as determined annually in accordance with the 401(k) Plan. Employer matching contribution payments of $
Legal Proceedings
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.
Cinemark Holdings, Inc., et al vs Factory Mutual Insurance Company. The Company filed suit on November 18, 2020, in the District Court, 471st Judicial District, Collin County, Texas. On December 22, 2020, the case was moved to the US District Court for the Eastern District of Texas, Sherman Division. The Company submitted a claim under its property insurance policy issued by Factory Mutual Insurance Company (the “FM Policy”) for losses sustained as a result of the closure of the Company’s theatres due to the COVID-19 pandemic. Factory Mutual Insurance Company (“FM”) denied the Company’s claim. The Company is seeking damages resulting from FM’s breach of contract, FM’s bad faith conduct and a declaration of the parties’ rights under the FM Policy. The Company
F-57
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
cannot predict the outcome of this litigation. The District Court granted FM’s motion for summary judgment. The Company has appealed the District Court’s decision.
Lakeenya Neal, et al v. Cinemark Holdings, Inc., et al. This class action lawsuit was filed against the Company on December 10, 2021, in the Central District of Los Angeles County Superior Court of the State of California alleging certain violations of the Fair and Accurate Credit Transactions Act. The plaintiffs voluntarily dismissed this case.
Gerardo Rodriguez, individually and on behalf of a class of all others similarly situated vs Cinemark USA, Inc. and Cinemark Holdings, Inc., et al. This class action lawsuit was filed against the Company on February 24, 2023 in the Cook County Circuit Court in Illinois alleging violation of the Fair and Accurate Credit Transactions Act. The Company firmly maintains that the allegations are without merit and will vigorously defend itself against the lawsuit. The Company cannot predict the outcome of this litigation.
National CineMedia LLC Bankruptcy. On June 3, 2023, NCM filed an Emergency Motion for Entry of an Order (1) approving and Authorizing Debtor to Enter into and Perform Under (a) the Termination and Settlement Agreement and (b) the Network Affiliate Transaction Agreement with Regal Cinemas, Inc. (the “9019 Motion”). The 9019 Motion requested an order, among other things, that the most favored nations clause (the “MFN”) in Cinemark’s Exhibitor Services Agreement was not triggered by the Network Affiliate Transaction Agreement with Regal Cinemas, Inc. On June 14, 2023, Cinemark filed an objection to the 9019 Motion. On June 26, 2023, the bankruptcy court entered a confirmation order, which among other things, approves NCM’s assumption of Cinemark’s Exhibitor Services Agreement but fails to preserve or recognize Cinemark’s rights under the MFN with respect to the Network Affiliate Transaction Agreement. Cinemark has appealed the confirmation order in the United States District Court for the Southern District of Texas, Houston Division. The Company cannot predict the outcome of this appeal.
The international market and U.S. market are managed as separate reportable operating segments, with the international segment consisting of operations in Brazil, Argentina, Chile, Colombia, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia and Paraguay. The Company closed its one theatre in Curacao in January 2023 and sold the shares of its Ecuador subsidiary in September 2023. See Note 8 for a discussion of the sale of our Ecuador subsidiary. Each segment’s revenue is derived from admissions and concession sales and other ancillary revenue. Holdings 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 or allocate resources between segments.
Holdings revenue, Adjusted EBITDA and capital expenditures by reportable operating segment
The following table is a breakdown of selected financial information by reportable operating segment for Holdings for the periods presented:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Revenue |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
International |
|
|
|
|
|
|
|
|
|
|||
Eliminations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Adjusted EBITDA (1) |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
International |
|
|
( |
) |
|
|
|
|
|
|
||
Total Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Capital expenditures |
|
|
|
|
|
|
|
|
|
|||
U.S. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
International |
|
|
|
|
|
|
|
|
|
|||
Total capital expenditures |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-58
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
The following table sets forth a reconciliation of net (loss) income to Adjusted EBITDA for Holdings for the periods presented:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Add (deduct): |
|
|
|
|
|
|
|
|
|
|||
Income tax (benefit) expense |
|
|
( |
) |
|
|
|
|
|
|
||
Interest expense (1) |
|
|
|
|
|
|
|
|
|
|||
Other expense (income), net (2) |
|
|
|
|
|
|
|
|
( |
) |
||
Cash distributions from equity investees (3) |
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|||
Impairment of long-lived and other assets |
|
|
|
|
|
|
|
|
|
|||
Restructuring costs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
(Gain) loss on disposal of assets and other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Loss on debt extinguishment and refinancing |
|
|
|
|
|
|
|
|
|
|||
Non-cash rent expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Share-based awards compensation expense |
|
|
|
|
|
|
|
|
|
|||
Adjusted EBITDA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Financial Information About Geographic Area
The following table sets forth a breakdown of select financial information for Holdings by geographic area for the periods presented:
|
|
Year Ended December 31, |
||||
|
|
2021 |
|
2022 |
|
2023 |
Revenue |
|
|
|
|
|
|
U.S. |
|
$ |
|
$ |
|
$ |
Brazil |
|
|
|
|||
Other international countries |
|
|
|
|||
Eliminations |
|
( |
|
( |
|
( |
Total |
|
$ |
|
$ |
|
$ |
|
|
As of December 31, |
||
|
|
2022 |
|
2023 |
Theatre properties and equipment, net |
|
|
|
|
U.S. |
|
$ |
|
$ |
Brazil |
|
|
||
Other international countries |
|
|
||
Total |
|
$ |
|
$ |
F-59
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES AND
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share data)
A subsidiary of the Company manages a theatre for Laredo Theatres, Ltd. (“Laredo”). The Company is the sole general partner and owns
Walter Hebert, Mr. Lee Roy Mitchell’s brother-in-law, previously served as the Executive Vice President – Purchasing of the Company and retired in July 2021. Mr. Hebert served as a consultant to the Company until July 2022. During the years ended December 31, 2021 and 2022, the Company paid Mr. Hebert $
A subsidiary of the Company has an Aircraft Time Sharing Agreement with Copper Beech Capital, LLC to use, on occasion, a private aircraft owned by Copper Beech Capital, LLC. Copper Beech Capital, LLC is owned by Mr. Lee Roy Mitchell and his wife, Tandy Mitchell. The private aircraft is used by Messrs. Lee Roy and Kevin Mitchell and other executives who accompany Mr. Lee Roy Mitchell to business meetings for the Company. The Company reimburses Copper Beech Capital, LLC the actual costs of fuel usage and the expenses of the pilots, landing fees, storage fees and similar expenses incurred during the trip. The aggregate amount paid to Copper Beech Capital, LLC for the use of the aircraft was less than $
A subsidiary of the Company currently leases
A subsidiary of the Company has a
F-60
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF CINEMARK HOLDINGS, INC.
CINEMARK HOLDINGS, INC.
PARENT COMPANY BALANCE SHEETS
(in millions, except share data)
|
|
December 31, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2023 |
|
||
Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Interest receivable and other current assets |
|
|
|
|
|
|
||
Investment in subsidiaries |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and equity |
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Accrued other current liabilities, including accounts payable to subsidiaries |
|
$ |
|
|
$ |
|
||
Long-term debt |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
( |
) |
|
|
( |
) |
Total liabilities |
|
|
|
|
|
|
||
) |
|
|
|
|
|
|
||
Equity |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in-capital |
|
|
|
|
|
|
||
Treasury stock, |
|
|
( |
) |
|
|
( |
) |
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total equity |
|
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of the condensed financial information of Cinemark Holdings Inc.
S-1
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF CINEMARK HOLDINGS, INC., CONTINUED
CINEMARK HOLDINGS, INC.
PARENT COMPANY STATEMENTS OF INCOME (LOSS)
(in millions)
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cost of operations |
|
|
|
|
|
|
|
|
|
|||
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|||
Loss before income taxes and equity in (loss) income of subsidiaries |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax benefit (expense) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Equity in (loss) income of subsidiaries, net of taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying notes are an integral part of the condensed financial information of Cinemark Holdings, Inc.
S-2
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF CINEMARK HOLDINGS, INC., CONTINUED
CINEMARK HOLDINGS, INC.
PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Other comprehensive (loss) income, net of tax |
|
|
|
|
|
|
|
|
|
|||
Unrealized gain (loss) due to fair value adjustments on interest rate swap agreements, net of taxes of $( |
|
|
|
|
|
|
|
|
( |
) |
||
Foreign currency translation adjustments |
|
|
( |
) |
|
|
|
|
|
|
||
Total other comprehensive (loss) income, net of tax |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Comprehensive (loss) income attributable to Cinemark Holdings, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The accompanying notes are an integral part of the condensed financial information of Cinemark Holdings Inc.
S-3
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF CINEMARK HOLDINGS, INC., CONTINUED
CINEMARK HOLDINGS, INC.
PARENT COMPANY STATEMENTS OF CASH FLOWS
(in millions)
|
|
Year Ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|||
Operating Activities |
|
|
|
|
|
|
|
|
|
|||
Net (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net (loss) income to cash used for operating activities: |
|
|
|
|
|
|
|
|
|
|||
Share-based awards compensation expense |
|
|
|
|
|
|
|
|
|
|||
Amortization of debt issuance costs |
|
|
|
|
|
|
|
|
|
|||
Equity in loss (income) of subsidiaries |
|
|
|
|
|
|
|
|
( |
) |
||
Changes in other assets and liabilities |
|
|
|
|
|
|
|
|
|
|||
Net cash used for operating activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Investing Activities |
|
|
|
|
|
|
|
|
|
|||
Contributions to subsidiaries |
|
|
( |
) |
|
|
|
|
|
|
||
Net cash used for investing activities |
|
|
( |
) |
|
|
|
|
|
|
||
Financing Activities |
|
|
|
|
|
|
|
|
|
|||
Restricted stock withholdings for payroll taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash used for financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|||
Beginning of period |
|
|
|
|
|
|
|
|
|
|||
End of period |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The accompanying notes are an integral part of the condensed financial information of Cinemark Holdings, Inc.
S-4
SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF CINEMARK HOLDINGS, INC., CONTINUED
CINEMARK HOLDINGS, INC.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
(in millions, except share and per share data)
Cinemark Holdings, Inc. conducts substantially all of its operations through its subsidiaries. These statements should be read in conjunction with Cinemark Holdings Inc. and subsidiaries' consolidated financial statements and notes included elsewhere in this annual report on Form 10-K. There are significant restrictions over Cinemark Holdings, Inc.’s ability to obtain funds from its subsidiaries through dividends, loans or advances as contained in CUSA’s senior secured credit facility and the indentures to each of the
Holdings suspended its quarterly dividend in March 2020 as a result of the COVID-19 pandemic. as discussed in Note 3 of the consolidated financial statements included elsewhere in this annual report on Form 10-K.
During the year ended December 31, 2021, Holdings paid a distribution of $
On August 21, 2020, Holdings issued $
Holdings’ capital stock along with its long-term incentive plan and related activity are discussed in Note 18 of the consolidated financial statements included elsewhere in this annual report on Form 10-K.
Holdings has no direct commitments and contingencies, but its subsidiaries do. See Note 21 of the consolidated financial statements included elsewhere in this annual report on Form 10-K.
*****
S-5
UNAUDITED SUPPLEMENTAL SCHEDULES SPECIFIED BY THE SENIOR NOTES INDENTURES
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2023
(in millions)
|
|
Restricted |
|
|
Unrestricted |
|
|
|
|
|
|
|
||||
|
|
Group |
|
|
Group |
|
|
Eliminations |
|
|
Consolidated |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other current assets |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Total current assets |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Theatre properties and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease right-of-use assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Liabilities and equity |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current portion of long-term debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Current portion of operating lease obligations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current portion of finance lease obligations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current income tax payable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total current liabilities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Long-term debt, less current portion |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Operating lease obligations, less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Finance lease obligations, less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other long-term liabilities and deferrals |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total long-term liabilities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total liabilities and equity |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Note: “Restricted Group” and “Unrestricted Group” are defined in the indentures for the senior notes.
S-6
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2023
(in millions)
|
|
Restricted |
|
|
Unrestricted |
|
|
|
|
|
|
|
||||
|
|
Group |
|
|
Group |
|
|
Eliminations |
|
|
Consolidated |
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Theatre operating costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Impairment of long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on disposal of assets and other |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Total cost of operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Interest expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Loss on debt extinguishment and refinancing |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Equity in income of affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense - NCM |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other income |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total other (expense) income |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: Net income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Cinemark USA, Inc. |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note: “Restricted Group” and “Unrestricted Group” are defined in the indentures for the senior notes.
S-7
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
(in millions)
|
|
Restricted |
|
|
Unrestricted |
|
|
|
|
|
|
|
||||
|
|
Group |
|
|
Group |
|
|
Eliminations |
|
|
Consolidated |
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes of $ |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total other comprehensive loss, net of tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Total comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive income attributable to noncontrolling interests |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Comprehensive income attributable to Cinemark USA, Inc. |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note: “Restricted Group” and “Unrestricted Group” are defined in the indentures for the senior notes.
S-8
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2023
(in millions)
|
|
Restricted |
|
|
Unrestricted |
|
|
|
|
|
|
|
||||
|
|
Group |
|
|
Group |
|
|
Eliminations |
|
|
Consolidated |
|
||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Adjustments to reconcile net income to cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Changes in assets and liabilities |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Additions to theatre properties and equipment |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Net proceeds from sale of subsidiary |
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|
|
|
|
|
|
|
|
|
|
||||
Proceeds from sale of assets and other |
|
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|
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|
|
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|
|
|
|
||||
Investment and loans to affiliates |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Net cash (used for) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Financing activities |
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|
|
|
|
|
|
|
|
|
|
||||
Proceeds from refinancing of senior secured credit facility |
|
|
|
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|
|
|
|
|
|
|
|
||||
Repayment of term loan on refinancing of senior secured credit facility |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Redemption of $ |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Payment of debt issuance costs |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Payment of fees on refinancing of senior secured credit facility |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other repayments of long-term debt |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Restricted stock withholdings for payroll taxes |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Payments on finance leases |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other financing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Net cash used for financing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Increase in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning of year |
|
|
|
|
|
|
|
|
|
|
|
|
||||
End of year |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note: “Restricted Group” and “Unrestricted Group” are defined in the indentures for the senior notes.
S-9