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SEC Filings

10-Q
CINEMARK HOLDINGS, INC. filed this Form 10-Q on 11/03/2017
Entire Document
 
cnk-10q_20170930.htm

 

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 September 30, 2017

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

☐  (Do not check if a smaller reporting company)

  

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 

As of October 31, 2017, 116,466,904 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 September 30, 2017 and December 31, 2016 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

 

Item 2.

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

 

24

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

34

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

34

 

 

 

 

 

PART II.     OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

35

 

 

 

 

 

 

Item 1A.

Risk Factors

 

35

 

 

 

 

 

 

Item 6.

Exhibits

 

36

 

 

 

 

 

SIGNATURES

 

37

 

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 23, 2017 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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

469,446

 

 

$

561,235

 

Inventories

 

 

16,844

 

 

 

16,961

 

Accounts receivable

 

 

82,650

 

 

 

74,993

 

Current income tax receivable

 

 

4,381

 

 

 

7,367

 

Prepaid expenses and other

 

 

17,010

 

 

 

15,761

 

Total current assets

 

 

590,331

 

 

 

676,317

 

 

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

 

3,268,653

 

 

 

3,059,754

 

Less: accumulated depreciation and amortization

 

 

1,477,047

 

 

 

1,355,218

 

Theatre properties and equipment, net

 

 

1,791,606

 

 

 

1,704,536

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Goodwill

 

 

1,294,342

 

 

 

1,262,963

 

Intangible assets - net

 

 

335,657

 

 

 

334,899

 

Investment in NCM

 

 

204,347

 

 

 

189,995

 

Investments in and advances to affiliates

 

 

112,878

 

 

 

98,317

 

Long-term deferred tax asset

 

 

2,098

 

 

 

2,051

 

Deferred charges and other assets - net

 

 

40,391

 

 

 

37,555

 

Total other assets

 

 

1,989,713

 

 

 

1,925,780

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

4,371,650

 

 

$

4,306,633

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

7,099

 

 

$

5,671

 

Current portion of capital lease obligations

 

 

24,836

 

 

 

21,139

 

Current income tax payable

 

 

7,893

 

 

 

5,071

 

Current liability for uncertain tax positions

 

 

11,714

 

 

 

10,085

 

Accounts payable and accrued expenses

 

 

341,132

 

 

 

401,259

 

Total current liabilities

 

 

392,674

 

 

 

443,225

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,781,952

 

 

 

1,782,441

 

Capital lease obligations, less current portion

 

 

252,047

 

 

 

234,281

 

Long-term deferred tax liability

 

 

144,740

 

 

 

135,014

 

Long-term liability for uncertain tax positions

 

 

7,801

 

 

 

8,105

 

Deferred lease expenses

 

 

41,291

 

 

 

42,378

 

Deferred revenue - NCM

 

 

354,419

 

 

 

343,928

 

Other long-term liabilities

 

 

44,906

 

 

 

44,301

 

Total long-term liabilities

 

 

2,627,156

 

 

 

2,590,448

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Cinemark Holdings, Inc.'s stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value: 300,000,000 shares

   authorized, 120,992,302 shares issued and 116,467,227 shares outstanding

   at September 30, 2017 and 120,657,254 shares issued and 116,210,252 shares

   outstanding at December 31, 2016

 

 

121

 

 

 

121

 

Additional paid-in-capital

 

 

1,137,897

 

 

 

1,128,442

 

Treasury stock, 4,525,075 and 4,447,002 shares, at cost, at September 30, 2017

   and December 31, 2016, respectively

 

 

(76,354

)

 

 

(73,411

)

Retained earnings

 

 

521,058

 

 

 

453,679

 

Accumulated other comprehensive loss

 

 

(242,894

)

 

 

(247,013

)

Total Cinemark Holdings, Inc.'s stockholders' equity

 

 

1,339,828

 

 

 

1,261,818

 

Noncontrolling interests

 

 

11,992

 

 

 

11,142

 

Total equity

 

 

1,351,820

 

 

 

1,272,960

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,371,650

 

 

$

4,306,633

 

 

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

4


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data, unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

425,128

 

 

$

472,842

 

 

$

1,351,477

 

 

$

1,364,737

 

Concession

 

 

247,027

 

 

 

261,391

 

 

 

777,573

 

 

 

752,798

 

Other

 

 

38,593

 

 

 

34,341

 

 

 

112,503

 

 

 

100,312

 

Total revenues

 

 

710,748

 

 

 

768,574

 

 

 

2,241,553

 

 

 

2,217,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

226,229

 

 

 

249,766

 

 

 

725,603

 

 

 

733,101

 

Concession supplies

 

 

40,178

 

 

 

41,888

 

 

 

124,117

 

 

 

116,999

 

Salaries and wages

 

 

87,305

 

 

 

84,460

 

 

 

261,318

 

 

 

243,833

 

Facility lease expense

 

 

81,919

 

 

 

82,848

 

 

 

248,569

 

 

 

241,904

 

Utilities and other

 

 

92,341

 

 

 

94,999

 

 

 

271,751

 

 

 

265,506

 

General and administrative expenses

 

 

36,947

 

 

 

35,290

 

 

 

112,997

 

 

 

109,143

 

Depreciation and amortization

 

 

58,052

 

 

 

54,187

 

 

 

174,545

 

 

 

155,874

 

Impairment of long-lived assets

 

 

5,026

 

 

 

406

 

 

 

9,600

 

 

 

2,323

 

Loss on sale of assets and other

 

 

8,576

 

 

 

6,940

 

 

 

9,464

 

 

 

10,985

 

Total cost of operations

 

 

636,573

 

 

 

650,784

 

 

 

1,937,964

 

 

 

1,879,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

74,175

 

 

 

117,790

 

 

 

303,589

 

 

 

338,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(26,317

)

 

 

(26,659

)

 

 

(79,208

)

 

 

(81,980

)

Loss on debt amendments and refinancing

 

 

 

 

 

 

 

 

(246

)

 

 

(13,284

)

Interest income

 

 

1,682

 

 

 

1,665

 

 

 

4,395

 

 

 

5,030

 

Foreign currency exchange gain

 

 

584

 

 

 

485

 

 

 

2,018

 

 

 

2,883

 

Distributions from NCM

 

 

2,144

 

 

 

1,381

 

 

 

11,704

 

 

 

10,117

 

Equity in income of affiliates

 

 

10,902

 

 

 

12,390

 

 

 

26,767

 

 

 

24,597

 

Total other expense

 

 

(11,005

)

 

 

(10,738

)

 

 

(34,570

)

 

 

(52,637

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

63,170

 

 

 

107,052

 

 

 

269,019

 

 

 

285,542

 

Income taxes

 

 

24,630

 

 

 

40,926

 

 

 

98,475

 

 

 

106,002

 

Net income

 

$

38,540

 

 

$

66,126

 

 

$

170,544

 

 

$

179,540

 

Less:  Net income attributable to noncontrolling interests

 

 

401

 

 

 

471

 

 

 

1,438

 

 

 

1,454

 

Net income attributable to Cinemark Holdings, Inc.

 

$

38,139

 

 

$

65,655

 

 

$

169,106

 

 

$

178,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

115,823

 

 

 

115,601

 

 

 

115,746

 

 

 

115,475

 

Diluted

 

 

116,104

 

 

 

115,793

 

 

 

116,063

 

 

 

115,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

0.56

 

 

$

1.45

 

 

$

1.53

 

Diluted

 

$

0.33

 

 

$

0.56

 

 

$

1.45

 

 

$

1.53

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.29

 

 

$

0.27

 

 

$

0.87

 

 

$

0.81

 

 

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

(In thousands, unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

38,540

 

 

$

66,126

 

 

$

170,544

 

 

$

179,540

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain due to fair value adjustments on interest rate

   swap agreements, net of settlements, net of taxes of $0, $0,

   $0 and $138

 

 

 

 

 

 

 

 

 

 

 

234

 

Other comprehensive income (loss) in equity method

   investments

 

 

(11

)

 

 

(7

)

 

 

92

 

 

 

(183

)

Foreign currency translation adjustments

 

 

9,085

 

 

 

(3,669

)

 

 

5,578

 

 

 

34,998

 

Total other comprehensive income (loss), net of tax

 

 

9,074

 

 

 

(3,676

)

 

 

5,670

 

 

 

35,049

 

Total comprehensive income, net of tax

 

 

47,614

 

 

 

62,450

 

 

 

176,214

 

 

 

214,589

 

Comprehensive income attributable to noncontrolling interests

 

 

(401

)

 

 

(475

)

 

 

(1,438

)

 

 

(1,478

)

Comprehensive income attributable to Cinemark

   Holdings, Inc.

 

$

47,213

 

 

$

61,975

 

 

$

174,776

 

 

$

213,111

 

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

170,544

 

 

$

179,540

 

Adjustments to reconcile net income to cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

173,378

 

 

 

154,308

 

Amortization of intangible and other assets and

   favorable/unfavorable leases

 

 

1,167

 

 

 

1,566

 

Amortization of long-term prepaid rents

 

 

1,540

 

 

 

1,357

 

Amortization of debt issue costs

 

 

4,619

 

 

 

4,068

 

Amortization of deferred revenues, deferred lease incentives

   and other

 

 

(12,037

)

 

 

(13,017

)

Impairment of long-lived assets

 

 

9,600

 

 

 

2,323

 

Share based awards compensation expense

 

 

9,487

 

 

 

10,247

 

Loss on sale of assets and other

 

 

9,464

 

 

 

10,985

 

Write-off of unamortized debt issue costs associated with early

   retirement of debt

 

 

 

 

 

2,369

 

Deferred lease expenses

 

 

(1,019

)

 

 

(809

)

Equity in income of affiliates

 

 

(26,767

)

 

 

(24,597

)

Deferred income tax expenses

 

 

9,541

 

 

 

16,382

 

Distributions from equity investees

 

 

17,321

 

 

 

9,660

 

Changes in assets and liabilities and other

 

 

(55,433

)

 

 

(76,102

)

Net cash provided by operating activities

 

 

311,405

 

 

 

278,280

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Additions to theatre properties and equipment and other

 

 

(262,730

)

 

 

(230,346

)

Acquisitions of theatres in the U.S. and international markets

 

 

(41,000

)

 

 

(15,300

)

Proceeds from sale of theatre properties and equipment and other

 

 

14,816

 

 

 

3,398

 

Proceeds from sale of marketable securities

 

 

 

 

 

13,451

 

Investment in joint ventures and other

 

 

(1,178

)

 

 

(1,703

)

Net cash used for investing activities

 

 

(290,092

)

 

 

(230,500

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Dividends paid to stockholders

 

 

(101,304

)

 

 

(94,117

)

Payroll taxes paid as a result of restricted stock withholdings

 

 

(2,943

)

 

 

(6,828

)

Proceeds from issuance of Senior Notes, net of discount

 

 

 

 

 

222,750

 

Retirement of Senior Subordinated Notes

 

 

 

 

 

(200,000

)

Repayments of long-term debt

 

 

(2,855

)

 

 

(15,217

)

Payment of debt issue costs

 

 

(817

)

 

 

(4,504

)

Payments on capital leases

 

 

(15,814

)

 

 

(14,655

)

Proceeds from financing lease

 

 

10,200

 

 

 

 

Other

 

 

(620

)

 

 

1,282

 

Net cash used for financing activities

 

 

(114,153

)

 

 

(111,289

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

1,051

 

 

 

2,081

 

 

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

 

(91,789

)

 

 

(61,428

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

561,235

 

 

 

588,539

 

End of period

 

$

469,446

 

 

$

527,111

 

 

 

 

 

 

 

 

 

 

Supplemental information (see Note 13)

 

 

 

 

 

 

 

 

 

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

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, 2016, 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, 2016, included in the Annual Report on Form 10-K filed February 23, 2017 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be achieved for the full year.

 

2.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASU 2014-09”). The purpose of ASU 2014-09 is to clarify the principles for recognizing revenue and create a common revenue standard for U.S. GAAP and International Financial Reporting Standards. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts).  The following subsequent Accounting Standards Updates either clarified or revised guidance set forth in ASU 2014-09:

 

In August 2015, the FASB issued Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, (“ASU 2015-14”).  ASU 2015-14 deferred the effective date of ASU 2014-09.  The guidance in ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.

 

In March 2016, the FASB issued Accounting Standards Update 2016-08, Revenue from Contracts with Customers (Topic 606):  Principal versus Agent Considerations (Reporting Revenues Gross versus Net), (“ASU 2016-08”). The purpose of ASU 2016-08 is to clarify the implementation of revenue recognition guidance for principal versus agent considerations.

 

In April 2016, the FASB issued Accounting Standards Update 2016-10, Revenue from Contracts with Customers (Topic 606):  Identifying Performance Obligations and Licensing, (“ASU 2016-10”). The purpose of ASU 2016-10 is to clarify certain aspects of identifying performance obligations and licensing implementation guidance.

 

In May 2016, the FASB issued Accounting Standards Update 2016-12, Revenue from Contracts with Customers (Topic 606):  Narrow-Scope Improvements and Practical Expedients, (“ASU 2016-12”). The purpose of ASU 2016-12 is to address certain narrow aspects of Accounting Standards Codification (“ASC”) Topic 606 including assessing collectability, presentation of sales taxes, noncash considerations, contract modifications and completed contracts at transition.

 

In December 2016, the FASB issued Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, (“ASU 2016-20”). The purpose of ASU 2016-20 is to amend certain narrow aspects of the guidance issued in ASU 2014-09 related to the disclosure of performance obligations, as well as

8


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

 

other amendments related to loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.

The amendments in these accounting standards updates may be applied either using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective or retrospectively to each period presented. Early adoption is permitted.

The Company will adopt the amendments within these accounting standards updates in the first quarter of 2018 using the modified retrospective transition method. The Company is continuing to evaluate the impact of these accounting standards updates on its condensed consolidated financial statements, specifically with respect to the Company’s Exhibitor Services Agreement (“ESA”) with NCM, loyalty program accounting, breakage income for stored value cards as well as other ancillary and contractual revenues.  The Company believes its ESA with NCM includes a significant financing component and, as a result, other revenues will increase with a similar offsetting increase in interest expense each year until the ESA term expires.  In addition, the amortization method used to amortize the deferred revenue associated with the ESA will change to straight-line under the new accounting standards due to the nature of the Company’s performance obligation under the ESA. The change in amortization method will result in a cumulative effect adjustment upon adoption, the value of which the Company is currently evaluating.  

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842), (“ASU 2016-02”). The purpose of ASU 2016-02 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 will result in the recognition of a right-of-use asset and a lease liability for most operating leases.  New disclosure requirements include qualitative and quantitative information about the amounts recorded in the financial statements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 requires a modified retrospective transition by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective with the option to elect certain practical expedients. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-02 on its condensed consolidated financial statements.  The most significant impact of the amendments in ASU 2016-02 will be the recognition of new right-of-use assets and lease liabilities for assets currently subject to operating leases.  The Company will adopt the amendments in ASU 2016-02 in the first quarter of 2019.  

In March 2016, the FASB issued Accounting Standards Update 2016-09, Compensation – Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting, (“ASU 2016-09”). The purpose of ASU 2016-09 is to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of such activity on the statement of cash flows.  ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within that year.  Prospective, retrospective, or modified retrospective application may be used dependent on the specific requirements of the amendments within ASU 2016-09. Effective January 1, 2017, the Company adopted ASU 2016-09 on a prospective basis (see Note 3).  As such, prior periods have not been adjusted.

In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments – a consensus of the FASB Emerging Issues Task Force, (“ASU 2016-15”). The purpose of ASU 2016-15 is to reduce the diversity in practice regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year.  A retrospective transition method should be used in the application of the amendments within ASU 2016-15.  Early adoption is permitted. The Company does not expect ASU 2016-15 to have a material impact on its condensed consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles – Goodwill and Other (Topic 350):  Simplifying the Test for Goodwill Impairment, (“ASU 2017-04”). The purpose of ASU 2017-04 is to simplify the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendments should be applied on a prospective basis. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within that year. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  The Company adopted the amendments in ASU 2017-04 during the second quarter of 2017 in order to reduce the complexity of performing its goodwill impairment tests.  As discussed in Note 9, these tests are generally performed in the fourth quarter of each year.  The Company does not expect ASU 2017-04 to have a material impact on its condensed consolidated financial statements.

In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation – Stock Compensation (Topic 718):  Scope Modification Accounting, (“ASU 2017-09”). The amendments in ASU 2017-09 provide guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting as described in ASC Topic

9


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

718.  The amendments should be applied on a prospective basis. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year. Early adoption is permitted.  The Company does not expect ASU 2017-09 to have a material impact on its condensed consolidated financial statements.  

In August 2017, the FASB issued Accounting Standards Update 2017-12, Derivatives and Hedging (Topic 815):  Targeted Improvements to Accounting for Hedging Activities, (“ASU 2017-12”). The amendments in ASU 2017-12 improve the financial reporting of hedging relationships to better reflect the economic results of an entity’s risk management activities in its financial statements.  Additionally, the amendments in ASU 2017-12 simplify certain steps of applying hedge accounting guidance.  ASU 2017-04 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year. Early adoption is permitted.  The Company does not expect ASU 2017-12 to have a material impact on its condensed consolidated financial statements.

3.

Earnings Per Share

The Company considers its unvested restricted stock awards, which contain non-forfeitable rights to dividends, participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share for the two classes of stock (common stock and unvested restricted stock) is calculated by dividing net income by the weighted average number of shares of common stock and unvested restricted stock outstanding during the reporting period. Diluted earnings per share is calculated using the weighted average number of shares of common stock plus the potentially dilutive effect of common equivalent shares outstanding determined under both the two class method and the treasury stock method.

Effective January 1, 2017, the Company adopted ASU 2016-09 on a prospective basis.  In accordance with the amendments in ASU 2016-09, the Company’s diluted earnings per share calculation for the three and nine months ended September 30, 2017 excludes the estimated income tax benefits and deficiencies in the application of the treasury stock method.  Excess income tax benefits or deficiencies related to share based awards are recognized as discrete items in the income statement during the period in which they occur. See Note 8 for a discussion of share based awards and related income tax benefits recognized during the nine months ended September 30, 2017 and 2016.

The following table presents computations of basic and diluted earnings per share under the two-class method:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Cinemark Holdings, Inc.

 

$

38,139

 

 

$

65,655

 

 

$

169,106

 

 

$

178,086

 

Earnings allocated to participating share-based awards (1)

 

 

(209

)

 

 

(336

)

 

 

(842

)

 

 

(805

)

Net income attributable to common stockholders

 

$

37,930

 

 

$

65,319

 

 

$

168,264

 

 

$

177,281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator (shares in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common stock outstanding

 

 

115,823

 

 

 

115,601

 

 

 

115,746

 

 

 

115,475

 

Common equivalent shares for restricted stock units

 

 

281

 

 

 

192

 

 

 

317

 

 

 

231

 

Diluted

 

 

116,104

 

 

 

115,793

 

 

 

116,063

 

 

 

115,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common

   stockholders

 

$

0.33

 

 

$

0.56

 

 

$

1.45

 

 

$

1.53

 

Diluted earnings per share attributable to common

   stockholders

 

$

0.33

 

 

$

0.56

 

 

$

1.45

 

 

$

1.53

 

 

(1)

For the three months ended September 30, 2017 and 2016, a weighted average of approximately 643 and 596 shares of unvested restricted stock, respectively, were considered participating securities. For the nine months ended September 30, 2017 and 2016, a weighted average of approximately 581 and 526 shares of unvested restricted stock, respectively, were considered participating securities.

10


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

4.

Long Term Debt Activity

Senior Secured Credit Facility

On June 16, 2017, Cinemark USA, Inc., our wholly-owned subsidiary, amended its senior secured credit facility to reduce the rate at which the term loan bears interest by 0.25% and to modify certain covenant definitions within the agreement. The Company incurred debt issue costs of approximately $521 in connection with the amendment, which are reflected as a reduction of long term debt on the condensed consolidated balance sheet as of September 30, 2017.  In addition, the Company incurred approximately $246 in legal fees that are reflected as loss on debt amendments and refinancing on the condensed consolidated statements of income for the nine months ended September 30, 2017.  

Fair Value of Long-Term Debt

The Company estimates the fair value of its long-term debt using the market approach, which utilizes quoted market prices that fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by ASC Topic 820. The carrying value of the Company’s long-term debt was $1,820,112 and $1,822,966 as of September 30, 2017 and December 31, 2016, respectively, excluding unamortized debt discounts and debt issue costs. The fair value of the Company’s long-term debt was $1,840,641 and $1,850,212 as of September 30, 2017 and December 31, 2016, respectively.

5.

Equity

Below is a summary of changes in stockholders’ equity attributable to Cinemark Holdings, Inc., noncontrolling interests and total equity for the nine months ended September 30, 2017 and 2016:

 

 

 

Cinemark

 

 

 

 

 

 

 

 

 

 

 

Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

 

Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at January 1, 2017

 

$

1,261,818

 

 

$

11,142

 

 

$

1,272,960

 

Share based awards compensation expense

 

 

9,487

 

 

 

 

 

 

9,487

 

Stock withholdings related to share based awards that

   vested during the nine months ended September 30, 2017

 

 

(2,943

)

 

 

 

 

 

(2,943

)

Tax expense related to share based awards vesting

 

 

(32

)

 

 

 

 

(32

)

Dividends paid to stockholders (1)

 

 

(101,304

)

 

 

 

 

 

(101,304

)

Dividends accrued on unvested restricted stock unit

   awards (1)

 

 

(423

)

 

 

 

 

 

(423

)

Dividends paid to noncontrolling interests

 

 

 

 

 

(588

)

 

 

(588

)

Net income

 

 

169,106

 

 

 

1,438

 

 

 

170,544

 

Other comprehensive income in equity method investees

 

 

92

 

 

 

 

 

 

92

 

Foreign currency translation adjustments (see Note 12)

 

 

4,027

 

 

 

 

 

 

4,027

 

Balance at September 30, 2017

 

$

1,339,828