UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
or
SECURITIES EXCHANGE ACT OF 1934
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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Registrant's telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
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).
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 |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of May 15, 2020,
EXPLANATORY NOTE
Cinemark Holdings, Inc. (the “Company”, “we,” or “us”), is filing this Form 10-Q for the period ended March 31, 2020 after the May 11, 2020 deadline in reliance on the 45-day extension provided by the Securities and Exchange Commission (the “SEC”) Order Under Section 36 of the Securities Exchange Act of 1934 (the “Exchange Act”) Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies (Release No. 34-88465), dated March 25, 2020 (the “Order”). The COVID-19 pandemic has had an unprecedented impact on our business and operations including the furlough of 50% of our headquarter employees, reduction in work hours of the remaining employees due to a 50% pay reduction and temporary closure of our corporate headquarters due to our work from home policy issued for the safety of our employees and their families, following protective actions taken by state and local governments. Due to these operational challenges, we could not file this Form 10-Q within the time period specified under the Exchange Act.
Pursuant to the requirements of the Order, we filed a Form 8-K with the SEC on May 8, 2020 indicating our intention to rely upon the Order with respect to the filing of this Form 10-Q which is being filed within the 45-day extension period provided by the Order.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Item 1. |
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Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited) |
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6 |
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7 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 6. |
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42 |
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43 |
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, including, among others, the impacts of COVID-19. Such risks and uncertainties 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 21, 2020, as updated by the information related to COVID-19 that was included in a Form 8-K that was filed on April 13, 2020, including the documents incorporated by reference therein. 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)
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March 31, |
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December 31, |
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2020 |
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2019 |
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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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Theatre properties and equipment |
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Less: accumulated depreciation and amortization |
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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 assets |
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Goodwill |
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Intangible assets, net |
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Investment in NCM |
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Investments in and advances to affiliates |
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Long-term deferred tax asset |
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Deferred charges and other assets, net |
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Total other assets |
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Total assets |
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$ |
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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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Current liability for uncertain tax positions |
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Accounts payable and accrued expenses |
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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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Commitments and contingencies (see Note 19) |
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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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Treasury stock, |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total Cinemark Holdings, Inc.'s stockholders' equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
4
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data, unaudited)
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Three Months Ended March 31, |
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2020 |
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2019 |
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Revenues |
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Admissions |
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$ |
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$ |
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Concession |
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Other |
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Total revenues |
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Cost of operations |
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Film rentals and advertising |
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Concession supplies |
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Salaries and wages |
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Facility lease expense |
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Utilities and other |
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General and administrative expenses |
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Depreciation and amortization |
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Impairment of long-lived assets |
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Loss on disposal of assets and other |
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Total cost of operations |
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Operating income (loss) |
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Other income (expense) |
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Interest expense |
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Interest income |
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Foreign currency exchange gain (loss) |
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Distributions from NCM |
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Interest expense - NCM |
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Equity in income of affiliates |
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Total other expense |
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Income (loss) before income taxes |
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Income taxes |
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Net income (loss) |
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$ |
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$ |
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Less: Net income attributable to noncontrolling interests |
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Net income (loss) attributable to Cinemark Holdings, Inc. |
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$ |
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$ |
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Basic |
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Diluted |
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Earnings (loss) per share attributable to Cinemark Holdings, Inc.'s common stockholders |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
5
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, unaudited)
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Three Months Ended March 31, |
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2020 |
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2019 |
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Net income (loss) |
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$ |
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$ |
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Other comprehensive income (loss), net of tax |
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Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes of $ |
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Other comprehensive loss in equity method investments |
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Foreign currency translation adjustments |
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Total other comprehensive loss, net of tax |
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Total comprehensive income (loss), net of tax |
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Comprehensive income attributable to noncontrolling interests |
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Comprehensive income (loss) attributable to Cinemark Holdings, Inc. |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
6
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
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2019 |
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Operating activities |
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Net income (loss) |
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Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities: |
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Depreciation |
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Amortization of intangible and other assets |
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Amortization of debt issue costs |
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Amortization of NCM screen advertising advances and other deferred revenues |
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Interest accrued on NCM screen advertising advances |
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Impairment of long-lived assets |
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Share based awards compensation expense |
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Loss on disposal of assets and other |
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Non-cash rent expense |
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Equity in income of affiliates |
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Deferred income tax expenses |
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Distributions from equity investees |
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Changes in assets and liabilities and other |
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Net cash provided by (used for) operating activities |
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Investing activities |
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Additions to theatre properties and equipment |
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Proceeds from sale of theatre properties and equipment and other |
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Investment in joint ventures and other, net |
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Net cash used for investing activities |
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Financing activities |
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Dividends paid to stockholders |
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Payroll taxes paid as a result of stock withholdings |
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Proceeds from revolving line of credit |
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Repayments of long-term debt |
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Payments on finance leases |
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Other |
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Net cash provided by (used for) financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Decrease in cash and cash equivalents |
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Cash and cash equivalents: |
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Beginning of period |
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End of period |
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$ |
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$ |
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Supplemental information (see Note 16) |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
7
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
1. |
The Company and Basis of Presentation |
The Company and its subsidiaries operate in the motion picture exhibition industry, with theatres in the United States (“U.S.”), Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Curacao and Paraguay.
The accompanying condensed consolidated balance sheet as of December 31, 2019, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. Majority-owned subsidiaries that the Company has control of are consolidated while those affiliates of which the Company owns between
These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and the notes thereto for the year ended December 31, 2019, included in the Annual Report on Form 10-K filed February 21, 2020 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results to be achieved for the full year.
2. |
Impact of COVID-19 |
The recent outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry. The situation continues to be volatile and the social and economic effects are widespread. As a movie exhibitor that operates spaces where patrons gather in close proximity, the Company’s business has been significantly impacted by protective actions that federal, state and local governments have taken to control the spread of the pandemic. These actions include, among other things, encouragement of social distancing, restrictions on freedom of movement, business closures, quarantines, and shelter-in-place and stay-at-home orders. As a result of these measures, the Company temporarily closed all of its theatres in the U.S. and Latin America effective March 18, 2020.
The Company believes it has sufficient cash to sustain its operations for the remainder of the year, even if its theatres remained closed for the remainder of the year. Nonetheless, the COVID-19 pandemic has had and may continue to have adverse effects on the Company’s business, results of operations, cash flows and financial condition. In light of the COVID-19 pandemic, the Company has been working to preserve cash and ensure sufficient liquidity to endure the impacts of the global crisis, even if prolonged. Some of the recent actions taken by the Company include the following:
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• |
directors of the Company and its chief executive officer have elected to take |
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• |
halted all non-essential operating and capital expenditures, such as marketing promotions and initiatives, travel and entertainment, system enhancements and related consulting projects, recliner conversions, XD expansions and certain other theatre enhancements, which will significantly reduce utilities and other costs, general and administrative expenses and capital expenditures on a temporary basis; |
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• |
suspended the quarterly dividend; |
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implemented a formal daily review and approval process by the Company’s chief financial officer for all outgoing procurement and payment requests; |
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laid off over |
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started working actively with landlords and major suppliers to modify the timing of certain contractual payments. |
8
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The Company continues to evaluate the impact of certain tax-related benefits available under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “Cares Act”) signed into U.S. federal law on March 27, 2020. The Cares Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss (“NOL”) utilization and carryback periods, modifications to the net interest deduction limitations and a technical correction to the 2017 Tax Cuts and Jobs Act, which makes certain qualified improvement property eligible for bonus depreciation. Based upon a review of the Cares Act, the Company expects to:
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• |
receive an approximately $ |
|
• |
benefit from the ability to defer social security payroll tax matches that would otherwise be required in 2020; |
|
• |
receive a payroll tax credit in 2020 for expenses related to paying wages and health benefits to employees who are not working as a result of closures and reduced receipts associated with COVID-19; and |
|
• |
apply any tax loss incurred in 2020 to prior year income for a refund when our 2020 tax return is filed. |
The Company continues to review, and intends to seek, any other available potential benefits under the Cares Act as well as any future legislation signed into law during 2020.
3. |
New Accounting Pronouncements |
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, (“ASU 2019-12”). The purpose of ASU 2019-12 is to simplify the accounting for income taxes. The improvements in ASU 2019-12 include removing certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. ASU 2019-12 also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within that year. The amendments in ASU 2019-12 should be applied prospectively. The Company is evaluating the impact of ASU 2019-12 and does not expect ASU-2019-12 to have a significant impact on the condensed consolidated financial statements.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, (“ASU 2020-04”). The purpose of ASU 2020-04 is to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. More specifically, the amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022. The Company is evaluating the impact of ASU 2020-04 and its impact on the condensed consolidated financial statements.
9
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
4. |
Lease Accounting |
The following table represents the Company’s aggregate lease costs, by lease classification, for the periods presented.
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Three Months Ended |
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|
|
March 31, |
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Lease Cost |
Classification |
2020 |
|
|
2019 |
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||
Operating lease costs |
|
|
|
|
|
|
|
|
Equipment (1) |
Utilities and other |
$ |
|
|
|
$ |
|
|
Real Estate (2)(3) |
Facility lease expense |
|
|
|
|
|
|
|
Total operating lease costs |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Finance lease costs |
|
|
|
|
|
|
|
|
Amortization of leased assets |
Depreciation and amortization |
$ |
|
|
|
$ |
|
|
Interest on lease liabilities |
Interest expense |
|
|
|
|
|
|
|
Total finance lease costs |
|
$ |
|
|
|
$ |
|
|
(1) |
|
(2) |
|
(3) |
|
The following table represents the minimum cash lease payments included in the measurement of lease liabilities and the non-cash addition of assets for the periods indicated.
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|
Three Months Ended |
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|
|
March 31, |
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Other Information |
|
2020 |
|
|
2019 |
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||
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 - real estate |
|
$ |
|
|
|
$ |
— |
|
Operating lease liabilities - equipment |
|
$ |
|
|
|
$ |
|
|
Finance lease liabilities |
|
$ |
— |
|
|
$ |
— |
|
As of March 31, 2020, the Company had signed lease agreements with total noncancelable lease payments of approximately $
10
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
5. |
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 products are sold to the consumer. Other revenues primarily consist of screen advertising and screen rental revenues, promotional income, studio trailer placements and transactional fees. The Company sells gift cards and discount ticket vouchers, the proceeds from which are recorded as deferred revenues. Deferred revenues for gift cards and discount ticket vouchers are recognized when they are redeemed for concession items or, if redeemed for movie tickets, when the showtime has passed. The Company offers a subscription program in the U.S. whereby patrons can pay a monthly fee to receive a monthly credit for use towards a future movie ticket purchase. The Company records the monthly subscription program fees as deferred revenues and records admissions revenues when the showtime for a movie ticket purchased with a credit has passed. The Company has loyalty programs in the U.S. and many of its international locations that either have a prepaid annual membership fee or award points to customers as purchases are made. For those loyalty programs that have an annual membership fee, the Company recognizes the fee collected as other revenues on a straight-line basis over the term of the membership. For those loyalty programs that award points to customers based on their purchases, the Company records a portion of the original transaction proceeds as deferred revenues based on the number of reward points issued to customers and recognizes the deferred revenues when the customer redeems such points. The value of loyalty points issued is based on the estimated fair value of the rewards offered. The Company records breakage revenue on gift cards and discount ticket vouchers generally based on redemption activity and historical experience with unused balances. The Company records breakage revenue upon the expiration of loyalty points and subscription credits. Advances collected on concession and other contracts are deferred and recognized during the period in which the Company satisfies the related performance obligations, which may differ from the period in which the advances are collected. These advances are recognized on either a straight-line basis over the term of the contracts or as the Company meets its performance obligations in accordance with the terms of the contracts.
Accounts receivable as of March 31, 2020 and December 31, 2019 included approximately $
Disaggregation of Revenue
The following table presents revenues for the three months ended March 31, 2020 and 2019, disaggregated based on major type of good or service and by reportable operating segment.
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Three Months Ended |
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|
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March 31, 2020 |
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U.S. |
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International |
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|
|
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||
|
|
Operating |
|
|
Operating |
|
|
|
|
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||
Major Goods/Services |
|
Segment (1) |
|
|
Segment |
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|