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 |
|
|
|||
|
|
|
|
|
|
Item 1. |
|
4 |
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (unaudited) |
|
4 |
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
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. |
|
37 |
|
|
|
|
|
|
|
Item 4. |
|
37 |
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
Item 1. |
|
38 |
|
|
|
|
|
|
|
Item 1A. |
|
38 |
|
|
|
|
|
|
|
Item 6. |
|
39 |
|
|
|
|
|
|
|
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
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
|
|
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 |
|