UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

Commission File Number: 001-33401

CINEMARK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-5490327

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3900 Dallas Parkway

 

 

Suite 500

 

 

Plano, Texas

 

75093

(Address of principal executive offices)

 

(Zip Code)

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

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

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

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

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

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $.001 per share

CNK

New York Stock Exchange

As of April 30, 2019, 117,101,510 shares of common stock were issued and outstanding.  

 

 

 


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I.     FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and 2018 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018 (unaudited)

 

7

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited)

 

8

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

9

 

 

 

 

 

 

Item 2.

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

 

30

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

37

 

 

 

 

 

PART II.     OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

38

 

 

 

 

 

 

Item 1A.

Risk Factors

 

38

 

 

 

 

 

 

Item 6.

Exhibits

 

39

 

 

 

 

 

SIGNATURES

 

40

 

2


 

Cautionary Statement Regarding Forward-Looking Statements

Certain matters within this Quarterly Report on Form 10Q include “forward–looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The “forward-looking statements” may include our current expectations, assumptions, estimates and projections about our business and our industry. They may include statements relating to future revenues, expenses and profitability, the future development and expected growth of our business, projected capital expenditures, attendance at movies generally or in any of the markets in which we operate, the number or diversity of popular movies released and our ability to successfully license and exhibit popular films, national and international growth in our industry, competition from other exhibitors and alternative forms of entertainment and determinations in lawsuits in which we are defendants.  Forward-looking statements can be identified by the use of words such as “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.  For a description of the risk factors, please review the “Risk Factors” section or other sections in the Company’s Annual Report on Form 10-K filed February 28, 2019 and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by such risk factors. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

3


 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data, unaudited)

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

425,194

 

 

$

426,222

 

Inventories

 

 

18,142

 

 

 

19,319

 

Accounts receivable

 

 

85,062

 

 

 

95,084

 

Current income tax receivable

 

 

4,213

 

 

 

3,288

 

Prepaid expenses and other

 

 

11,895

 

 

 

15,117

 

Total current assets

 

 

544,506

 

 

 

559,030

 

 

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

 

3,213,464

 

 

 

3,404,150

 

Less: accumulated depreciation and amortization

 

 

1,489,011

 

 

 

1,571,017

 

Theatre properties and equipment, net

 

 

1,724,453

 

 

 

1,833,133

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

1,443,451

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Goodwill

 

 

1,276,753

 

 

 

1,276,324

 

Intangible assets - net

 

 

324,952

 

 

 

330,910

 

Investment in NCM

 

 

272,414

 

 

 

275,592

 

Investments in and advances to affiliates

 

 

157,458

 

 

 

156,766

 

Long-term deferred tax asset

 

 

7,851

 

 

 

9,028

 

Deferred charges and other assets - net

 

 

38,910

 

 

 

41,055

 

Total other assets

 

 

2,078,338

 

 

 

2,089,675

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

5,790,748

 

 

$

4,481,838

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

7,984

 

 

$

7,984

 

Current portion of operating lease obligations

 

 

211,387

 

 

 

 

Current portion of finance and capital lease obligations

 

 

14,942

 

 

 

27,065

 

Current income tax payable

 

 

31,855

 

 

 

12,179

 

Current liability for uncertain tax positions

 

 

225

 

 

 

573

 

Accounts payable and accrued expenses

 

 

390,585

 

 

 

426,888

 

Total current liabilities

 

 

656,978

 

 

 

474,689

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,772,304

 

 

 

1,772,627

 

Operating lease obligations, less current portion

 

 

1,284,317

 

 

 

 

Finance and capital lease obligations, less current portion

 

 

134,216

 

 

 

232,467

 

Long-term deferred tax liability

 

 

148,665

 

 

 

155,626

 

Long-term liability for uncertain tax positions

 

 

13,546

 

 

 

13,380

 

Deferred lease expenses

 

 

 

 

 

39,235

 

Deferred revenue - NCM

 

 

284,944

 

 

 

287,349

 

Other long-term liabilities

 

 

31,992

 

 

 

50,348

 

Total long-term liabilities

 

 

3,669,984

 

 

 

2,551,032

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Cinemark Holdings, Inc.'s stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value: 300,000,000 shares authorized, 121,792,137 shares issued and 117,107,057 shares outstanding at March 31, 2019 and 121,456,721 shares issued and 116,830,530 shares outstanding at December 31, 2018

 

 

121

 

 

 

121

 

Additional paid-in-capital

 

 

1,158,394

 

 

 

1,155,424

 

Treasury stock, 4,685,080 and 4,626,191 shares, at cost, at March 31, 2019 and December 31, 2018, respectively

 

 

(81,206

)

 

 

(79,259

)

Retained earnings

 

 

696,267

 

 

 

686,459

 

Accumulated other comprehensive loss

 

 

(321,634

)

 

 

(319,007

)

Total Cinemark Holdings, Inc.'s stockholders' equity

 

 

1,451,942

 

 

 

1,443,738

 

4


 

Noncontrolling interests

 

 

11,844

 

 

 

12,379

 

Total equity

 

 

1,463,786

 

 

 

1,456,117

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

5,790,748

 

 

$

4,481,838

 

 

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

5


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data, unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

Admissions

 

$

395,540

 

 

$

452,624

 

Concession

 

 

251,324

 

 

 

261,772

 

Other

 

 

67,859

 

 

 

65,575

 

Total revenues

 

 

714,723

 

 

 

779,971

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

210,077

 

 

 

240,915

 

Concession supplies

 

 

43,071

 

 

 

40,824

 

Salaries and wages

 

 

96,136

 

 

 

93,158

 

Facility lease expense

 

 

85,613

 

 

 

82,091

 

Utilities and other

 

 

110,637

 

 

 

109,432

 

General and administrative expenses

 

 

37,976

 

 

 

42,384

 

Depreciation and amortization

 

 

64,462

 

 

 

64,395

 

Impairment of long-lived assets

 

 

5,584

 

 

 

591

 

Loss on disposal of assets and other

 

 

3,799

 

 

 

3,939

 

Total cost of operations

 

 

657,355

 

 

 

677,729

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

57,368

 

 

 

102,242

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(25,141

)

 

 

(27,115

)

Loss on debt amendments and refinancing

 

 

-

 

 

 

(1,484

)

Interest income

 

 

2,691

 

 

 

2,238

 

Foreign currency exchange gain

 

 

22

 

 

 

1,378

 

Distributions from NCM

 

 

4,548

 

 

 

6,358

 

Interest expense - NCM

 

 

(4,782

)

 

 

(4,979

)

Equity in income of affiliates

 

 

10,404

 

 

 

8,636

 

Total other expense

 

 

(12,258

)

 

 

(14,968

)

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

45,110

 

 

 

87,274

 

Income taxes

 

 

11,917

 

 

 

25,097

 

Net income

 

$

33,193

 

 

$

62,177

 

Less:  Net income attributable to noncontrolling interests

 

 

465

 

 

 

156

 

Net income attributable to Cinemark Holdings, Inc.

 

$

32,728

 

 

$

62,021

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

116,179

 

 

 

115,883

 

Diluted

 

 

116,418

 

 

 

116,143

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

0.28

 

 

$

0.53

 

Diluted

 

$

0.28

 

 

$

0.53

 

 

 

 

 

 

 

 

 

 

 

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

6


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

2018

 

Net income

 

 

$

33,193

 

 

$

62,177

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes of $1,069, net of settlements

 

 

 

(3,311

)

 

 

 

Other comprehensive income (loss) in equity method investments

 

 

 

(71

)

 

 

136

 

Foreign currency translation adjustments

 

 

 

755

 

 

 

204

 

Total other comprehensive income (loss), net of tax

 

 

 

(2,627

)

 

 

340

 

Total comprehensive income, net of tax

 

 

 

30,566

 

 

 

62,517

 

Comprehensive income attributable to noncontrolling interests

 

 

 

(465

)

 

 

(156

)

Comprehensive income attributable to Cinemark Holdings, Inc.

 

 

$

30,101

 

 

$

62,361

 

 

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

7


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

33,193

 

 

$

62,177

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

63,247

 

 

 

63,514

 

Amortization of intangible and other assets and favorable/unfavorable leases

 

 

1,215

 

 

 

881

 

Amortization of long-term prepaid rents

 

 

 

 

 

639

 

Amortization of debt issue costs

 

 

1,328

 

 

 

1,590

 

Loss on debt amendments and refinancing

 

 

 

 

 

1,484

 

Amortization of deferred revenues, deferred lease incentives and other

 

 

(4,021

)

 

 

(5,343

)

Impairment of long-lived assets

 

 

5,584

 

 

 

591

 

Share based awards compensation expense

 

 

2,970

 

 

 

3,426

 

Loss on disposal of assets and other

 

 

3,799

 

 

 

3,939

 

Non-cash rent expense

 

 

(819

)

 

 

 

Deferred lease expenses

 

 

 

 

 

(483

)

Equity in income of affiliates

 

 

(10,404

)

 

 

(8,636

)

Deferred income tax expenses

 

 

(10,964

)

 

 

(72

)

Distributions from equity investees

 

 

14,342

 

 

 

12,323

 

Changes in assets and liabilities and other

 

 

4,814

 

 

 

(52,378

)

Net cash provided by operating activities

 

 

104,284

 

 

 

83,652

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Additions to theatre properties and equipment

 

 

(57,569

)

 

 

(80,163

)

Proceeds from sale of theatre properties and equipment and other

 

 

57

 

 

 

477

 

Investment in joint ventures and other, net

 

 

 

 

 

764

 

Net cash used for investing activities

 

 

(57,512

)

 

 

(78,922

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Dividends paid to stockholders

 

 

(39,797

)

 

 

(37,346

)

Payroll taxes paid as a result of stock withholdings

 

 

(1,947

)

 

 

(2,695

)

Repayments of long-term debt

 

 

(1,649

)

 

 

(1,649

)

Payment of debt issue costs

 

 

 

 

 

(4,962

)

Fees paid related to debt amendments

 

 

 

 

 

(704

)

Payments on capital leases

 

 

(3,517

)

 

 

(6,090

)

Other

 

 

(1,000

)

 

 

 

Net cash used for financing activities

 

 

(47,910

)

 

 

(53,446

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

110

 

 

 

215

 

 

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

 

(1,028

)

 

 

(48,501

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

426,222

 

 

 

522,547

 

End of period

 

$

425,194

 

 

$

474,046

 

 

 

 

 

 

 

 

 

 

Supplemental information (see Note 15)

 

 

 

 

 

 

 

 

 

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

 

 

 

8


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

 

1.

The Company and Basis of Presentation

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

The accompanying condensed consolidated balance sheet as of December 31, 2018, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. Majority-owned subsidiaries that the Company has control of are consolidated while those affiliates of which the Company owns between 20% and 50% and does not control are accounted for under the equity method. Those affiliates of which the Company owns less than 20% are generally accounted for under the cost method, unless the Company is deemed to have the ability to exercise significant influence over the affiliate, in which case the Company would account for its investment under the equity method. The results of these subsidiaries and affiliates are included in the condensed consolidated financial statements effective with their formation or from their dates of acquisition. Intercompany balances and transactions are eliminated in consolidation.  

These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and the notes thereto for the year ended December 31, 2018, included in the Annual Report on Form 10-K filed February 28, 2019 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results to be achieved for the full year.

 

2.

New Accounting Pronouncements

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

3.

Adoption of ASC Topic 842 – Lease Accounting

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

 

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

 

The Company also elected the following practical expedients:

 

o

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

 

o

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

 

o

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

 

o

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


9


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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

 

1.

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

 

2.

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

 

a.

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

 

b.

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

 

3.

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

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

 

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

10


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The following table represents the operating and finance right-of-use assets and lease liabilities as of March 31, 2019.

 

 

 

 

As of

 

Leases

Classification

 

March 31, 2019

 

Assets (1)

 

 

 

 

 

Operating lease assets

Operating lease assets

 

$

1,443,451

 

Finance lease assets

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

 

 

126,854

 

Total lease assets

 

 

$

1,570,305

 

 

 

 

 

 

 

Liabilities (1)

 

 

 

 

 

Current

 

 

 

 

 

Operating

Current portion of operating lease obligations

 

$

211,387

 

Finance

Current portion of finance lease obligations

 

 

14,942

 

Noncurrent

 

 

 

 

 

Operating

Operating lease obligations, less current portion

 

 

1,284,317

 

Finance

Finance lease obligations, less current portion

 

 

134,216

 

Total lease liabilities

 

 

$

1,644,862

 

 

(1)

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

(2)

Finance lease assets are net of accumulated amortization of $50,503 as of March 31, 2019.

As of March 31, 2019, the Company had signed lease agreements with total noncancelable lease payments of approximately $195,955 related to theatre leases that had not yet commenced.  The timing of lease commencement is dependent on the completion of construction of the related theatre facility.  Additionally, these amounts are based on estimated square footage and costs to construct each facility and may be subject to adjustment upon final completion of each construction project.  In accordance with ASC Topic 842, fixed minimum lease payments related to these theatres are not included in the right of use assets and lease liabilities as of March 31, 2019.  There were no significant noncancelable lease agreements signed, but not yet commenced, related to equipment leases.  

The following table represents the Company’s aggregate lease costs, by lease classification, for the three months ended March 31, 2019.

 

 

 

Three Months Ended

 

Lease Cost

Classification

March 31, 2019

 

Operating lease costs

 

 

 

 

Equipment (1)

Utilities and other

$

1,743

 

Theatres (2)(3)

Facility lease expense

 

84,785

 

Total operating lease costs

 

$

86,528

 

 

 

 

 

 

Finance lease costs

 

 

 

 

Amortization of leased assets

Depreciation and amortization

 

3,740

 

Interest on lease liabilities

Interest expense

 

2,021

 

Total finance lease costs

 

$

5,761

 

(1)

Includes approximately $620 of short-term lease payments.  

(2)

Includes approximately $15,934 of variable lease payments based on a change in index, such as CPI or inflation, variable payments based on revenues or attendance and variable common area maintenance costs.

(3)

Approximately $402 of lease payments are included in general administrative expenses primarily related to office leases.  

11


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The following table represents the maturity of lease liabilities, by lease classification, as of March 31, 2019.

 

 

 

Operating

 

Finance

 

 

 

 

Years Ending

 

Leases

 

Leases

 

Total

 

2019

 

$

209,134

 

$

16,683

 

$

225,817

 

2020

 

 

265,866

 

 

22,373

 

 

288,239

 

2021

 

 

248,804

 

 

18,661

 

 

267,465

 

2022

 

 

219,925

 

 

17,925

 

 

237,850

 

2023

 

 

189,116

 

 

17,236

 

 

206,352

 

After 2023

 

 

674,349

 

 

101,109

 

 

775,458

 

Total lease payments

 

$

1,807,194

 

$

193,987

 

$

2,001,181

 

Less: Interest

 

 

311,490

 

 

44,829

 

 

356,319

 

Present value of lease liabilities

 

$

1,495,704

 

$

149,158

 

$

1,644,862

 

 

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

 

 

 

Operating

 

 

Capital

 

Years Ending

 

Leases

 

 

Leases

 

2019

 

$

253,323

 

 

$

42,434

 

2020

 

 

242,336

 

 

 

41,502

 

2021

 

 

230,396

 

 

 

34,589

 

2022

 

 

204,628

 

 

 

32,462

 

2023

 

 

176,802

 

 

 

28,534

 

Thereafter

 

 

677,091

 

 

 

166,375

 

Total

 

$

1,784,576

 

 

 

345,896

 

Amounts representing interest payments

 

 

 

 

 

 

(86,364

)

Present value of future minimum payments

 

 

 

 

 

 

259,532

 

Current portion of finance and capital lease obligations

 

 

 

 

 

 

(27,065

)

Capital lease obligations, less current portion

 

 

 

 

 

$

232,467

 

 

The following table represents the weighted-average remaining lease term and discount rate, disaggregated by lease classification, as of March 31, 2019.

 

 

As of

 

Lease Term and Discount Rate

 

March 31, 2019

 

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

 

 

 

 

Operating leases - equipment

 

 

4.5

 

Operating leases - theatres

 

 

8.2

 

Finance leases - equipment

 

 

6.3

 

Finance leases - theatres

 

 

10.9

 

 

 

 

 

 

Weighted-average discount rate (2)

 

 

 

 

Operating leases - equipment

 

 

4.3

%

Operating leases - theatres

 

 

4.8

%

Finance leases - equipment

 

 

5.5

%

Finance leases - theatres

 

 

5.3

%

 

(1)

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

 

 

(2)

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

 

12


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The following table represents the minimum cash lease payments included in the measurement of lease liabilities and the non-cash addition of right-of-use assets for the three months ended March 31, 2019.

 

 

 

Three months ended,

 

Other Information

 

March 31, 2019

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

Cash outflows for operating leases

 

$

69,974

 

Cash outflows for finance leases - operating activities

 

$

1,974

 

Cash outlfows for finance leases - financing activities

 

$

3,517

 

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

 

 

 

 

Operating lease liabilities - equipment

 

$

101

 

Finance lease liabilities

 

$

 

 

4.

Revenue Recognition

The Company’s patrons have the option to purchase movie tickets well in advance of a movie showtime or right before the movie showtime, or at any point in between those two timeframes depending on seat availability.  The Company recognizes such admissions revenues when the showtime for a purchased movie ticket has passed.  Concession revenues are recognized when sales are made at the registers.  Other revenues primarily consist of screen advertising, promotional income and transactional fees. Screen advertising revenues are recognized over the period that the related advertising is delivered on-screen or in-theatre.  The Company sells gift cards and discount ticket vouchers, the proceeds from which are recorded as current liabilities.  Revenues for gift cards and discount ticket vouchers are recognized when they are redeemed for movie tickets or concession items.  The Company offers a subscription program in the U.S. whereby patrons can pay a monthly fee to receive a monthly credit for use towards a future movie ticket purchase.  The Company records the monthly subscription program fees as current liabilities and records admissions revenues when the showtime for a movie ticket purchased with a credit has passed.  The Company also has loyalty programs in many of its locations that either have a prepaid annual membership fee or award points to customers as purchases are made.  For those loyalty programs that have an annual membership fee, the Company recognizes the fee collected as other revenues over the term of the membership.  For those loyalty programs that award points to customers based on their purchases, the Company records a portion of the original transaction proceeds as liabilities based on the number of reward points issued to customers and recognizes revenues when the customer redeems such points.  Advances collected on long-term screen advertising, concession and other contracts are recorded as deferred revenues. In accordance with the terms of the agreements, the advances collected on such contracts are recognized during the period in which the Company satisfies the related performance obligations, which may differ from the period in which the advances are collected. These advances are recognized on either a straight-line basis over the term of the contracts or as the Company has met its performance obligations in accordance with the terms of the contracts.  

 

Accounts receivable as of March 31, 2019 included approximately $34,833 of receivables related to contracts with customers.  The Company did not record any assets related to the costs to obtain or fulfill a contract with customers during the three months ended March 31, 2019.

 

Disaggregation of Revenue

The following table presents revenues for the three months ended March 31, 2019 and 2018, disaggregated based on major type of good or service and by reportable operating segment.

 

Three Months Ended

 

 

March 31, 2019

 

 

U.S.

 

 

International

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

Major Goods/Services

Segment (1)

 

 

Segment

 

 

Consolidated

 

Admissions revenues

$

308,839

 

 

$

86,701

 

 

$

395,540

 

Concession revenues

 

199,386

 

 

 

51,938

 

 

 

251,324

 

Screen advertising and promotional revenues

 

20,580

 

 

 

14,038

 

 

 

34,618

 

Other revenues

 

26,011

 

 

 

7,230

 

 

 

33,241

 

Total revenues

$

554,816

 

 

$

159,907

 

 

$

714,723

 

 

13


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

 

 

Three Months Ended

 

 

March 31, 2018

 

 

U.S.

 

 

International

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

Major Goods/Services

Segment (1)

 

 

Segment

 

 

Consolidated

 

Admissions revenues

$

349,352

 

 

$

103,272

 

 

$

452,624

 

Concession revenues

 

203,750

 

 

 

58,022

 

 

 

261,772

 

Screen advertising and promotional revenues

 

18,179

 

 

 

14,269

 

 

 

32,448

 

Other revenues

 

25,062

 

 

 

8,065

 

 

 

33,127

 

Total revenues

$

596,343

 

 

$

183,628

 

 

$

779,971

 

 

(1)

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

The following table presents revenues for the three months ended March 31, 2019, disaggregated based on timing of revenue recognition.

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Goods and services transferred at a point in time

 

$

532,183

 

 

$

143,109

 

 

$

675,292

 

Goods and services transferred over time

 

 

22,633

 

 

 

16,798

 

 

 

39,431

 

Total

 

$

554,816

 

 

$

159,907

 

 

$

714,723

 

 

(1)

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

Deferred Revenues

The following table presents changes in the Company’s deferred revenues for the three months ended March 31, 2019.  

 

 

Deferred

Revenue -

NCM

 

 

Other

Deferred

Revenues (1)

 

 

Total

 

Balance at January 1, 2019

 

$

287,349

 

 

$

106,075

 

 

$

393,424

 

Amounts recognized as accounts receivable

 

 

 

 

 

5,907

 

 

 

5,907

 

Cash received from customers in advance

 

 

 

 

 

40,899

 

 

 

40,899

 

Common units received from NCM (see Note 8)

 

 

1,552

 

 

 

 

 

 

1,552

 

Revenue recognized during period

 

 

(3,957

)

 

 

(43,760

)

 

 

(47,717

)

Foreign currency translation adjustments

 

 

 

 

 

(318

)

 

 

(318

)

Balance at March 31, 2019

 

$

284,944