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SEC Filings

10-Q
CINEMARK HOLDINGS, INC. filed this Form 10-Q on 05/09/2018
Entire Document
 
cnk-10q_20180331.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 March 31, 2018

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,” “smaller reporting company” and “emerging growth 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 April 30, 2018, 116,778,802 shares of common stock were issued and outstanding.  

 

 

 


 

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I.     FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the three months ended March 31, 2018 and 2017 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

 

Item 2.

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

 

25

 

 

 

 

 

 

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, 2018 and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by such risk factors. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

3


 

PART I - FINANCIAL INFORMATION

 

Item 1.Financial Statements

CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data, unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

474,046

 

 

$

522,547

 

Inventories

 

 

17,083

 

 

 

17,507

 

Accounts receivable

 

 

78,211

 

 

 

89,250

 

Current income tax receivable

 

 

2,991

 

 

 

11,730

 

Prepaid expenses and other

 

 

19,409

 

 

 

16,536

 

Total current assets

 

 

591,740

 

 

 

657,570

 

 

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

 

3,387,494

 

 

 

3,328,589

 

Less: accumulated depreciation and amortization

 

 

1,551,842

 

 

 

1,500,535

 

Theatre properties and equipment, net

 

 

1,835,652

 

 

 

1,828,054

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Goodwill

 

 

1,283,945

 

 

 

1,284,079

 

Intangible assets - net

 

 

335,164

 

 

 

336,761

 

Investment in NCM

 

 

202,455

 

 

 

200,550

 

Investments in and advances to affiliates

 

 

118,789

 

 

 

120,045

 

Long-term deferred tax asset

 

 

4,103

 

 

 

4,067

 

Deferred charges and other assets - net

 

 

41,623

 

 

 

39,767

 

Total other assets

 

 

1,986,079

 

 

 

1,985,269

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

4,413,471

 

 

$

4,470,893

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

7,984

 

 

$

7,099

 

Current portion of capital lease obligations

 

 

26,231

 

 

 

25,511

 

Current income tax payable

 

 

11,058

 

 

 

5,509

 

Current liability for uncertain tax positions

 

 

12,353

 

 

 

11,873

 

Accounts payable and accrued expenses

 

 

329,723

 

 

 

418,921

 

Total current liabilities

 

 

387,349

 

 

 

468,913

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,775,252

 

 

 

1,780,381

 

Capital lease obligations, less current portion

 

 

245,798

 

 

 

251,151

 

Long-term deferred tax liability

 

 

134,732

 

 

 

121,787

 

Long-term liability for uncertain tax positions

 

 

13,258

 

 

 

8,358

 

Deferred lease expenses

 

 

40,489

 

 

 

40,929

 

Deferred revenue - NCM

 

 

299,222

 

 

 

351,706

 

Other long-term liabilities

 

 

45,380

 

 

 

41,980

 

Total long-term liabilities

 

 

2,554,131

 

 

 

2,596,292

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Cinemark Holdings, Inc.'s stockholders' equity:

 

 

 

 

 

 

 

 

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

   authorized, 121,385,985 shares issued and 116,778,802 shares outstanding

   at March 31, 2018 and 121,000,903 shares issued and 116,475,033 shares

   outstanding at December 31, 2017

 

 

121

 

 

 

121

 

Additional paid-in-capital

 

 

1,144,514

 

 

 

1,141,088

 

Treasury stock, 4,607,183 and 4,525,870 shares, at cost, at March 31, 2018

   and December 31, 2017, respectively

 

 

(79,049

)

 

 

(76,354

)

Retained earnings

 

 

647,298

 

 

 

582,222

 

Accumulated other comprehensive loss

 

 

(252,942

)

 

 

(253,282

)

Total Cinemark Holdings, Inc.'s stockholders' equity

 

 

1,459,942

 

 

 

1,393,795

 

Noncontrolling interests

 

 

12,049

 

 

 

11,893

 

Total equity

 

 

1,471,991

 

 

 

1,405,688

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,413,471

 

 

$

4,470,893

 

 

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 March 31,

 

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

Admissions

 

$

452,624

 

 

$

476,469

 

Concession

 

 

261,772

 

 

 

268,224

 

Other

 

 

65,575

 

 

 

34,917

 

Total revenues

 

 

779,971

 

 

 

779,610

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

240,915

 

 

 

252,818

 

Concession supplies

 

 

40,824

 

 

 

42,100

 

Salaries and wages

 

 

93,158

 

 

 

84,201

 

Facility lease expense

 

 

82,091

 

 

 

84,262

 

Utilities and other

 

 

109,432

 

 

 

88,357

 

General and administrative expenses

 

 

42,384

 

 

 

38,216

 

Depreciation and amortization

 

 

64,395

 

 

 

57,356

 

Impairment of long-lived assets

 

 

591

 

 

 

273

 

Loss on sale of assets and other

 

 

3,939

 

 

 

834

 

Total cost of operations

 

 

677,729

 

 

 

648,417

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

102,242

 

 

 

131,193

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(27,115

)

 

 

(26,369

)

Loss on debt amendments

 

 

(1,484

)

 

 

 

Interest income

 

 

2,238

 

 

 

1,333

 

Foreign currency exchange gain

 

 

1,378

 

 

 

1,589

 

Distributions from NCM

 

 

6,358

 

 

 

6,788

 

Interest expense - NCM

 

 

(4,979

)

 

 

 

Equity in income of affiliates

 

 

8,636

 

 

 

10,060

 

Total other expense

 

 

(14,968

)

 

 

(6,599

)

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

87,274

 

 

 

124,594

 

Income taxes

 

 

25,097

 

 

 

44,400

 

Net income

 

$

62,177

 

 

$

80,194

 

Less:  Net income attributable to noncontrolling interests

 

 

156

 

 

 

466

 

Net income attributable to Cinemark Holdings, Inc.

 

$

62,021

 

 

$

79,728

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

115,883

 

 

 

115,629

 

Diluted

 

 

116,143

 

 

 

115,915

 

 

 

 

 

 

 

 

 

 

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

   common stockholders

 

 

 

 

 

 

 

 

Basic

 

$

0.53

 

 

$

0.68

 

Diluted

 

$

0.53

 

 

$

0.68

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.32

 

 

$

0.29

 

 

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 March 31,

 

 

 

2018

 

 

2017

 

Net income

 

$

62,177

 

 

$

80,194

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

Other comprehensive income in equity method

   investments

 

 

136

 

 

 

198

 

Foreign currency translation adjustments

 

 

204

 

 

 

14,893

 

Total other comprehensive income, net of tax

 

 

340

 

 

 

15,091

 

Total comprehensive income, net of tax

 

 

62,517

 

 

 

95,285

 

Comprehensive income attributable to noncontrolling interests

 

 

(156

)

 

 

(466

)

Comprehensive income attributable to Cinemark

   Holdings, Inc.

 

$

62,361

 

 

$

94,819

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

62,177

 

 

$

80,194

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

63,514

 

 

 

56,975

 

Amortization of intangible and other assets and favorable/unfavorable leases

 

 

881

 

 

 

381

 

Amortization of long-term prepaid rents

 

 

639

 

 

 

493

 

Amortization of debt issue costs

 

 

1,590

 

 

 

1,529

 

Loss on debt amendments

 

 

1,484

 

 

 

 

Amortization of deferred revenues, deferred lease incentives and other

 

 

(5,343

)

 

 

(3,822

)

Impairment of long-lived assets

 

 

591

 

 

 

273

 

Share based awards compensation expense

 

 

3,426

 

 

 

3,241

 

Loss on sale of assets and other

 

 

3,939

 

 

 

834

 

Deferred lease expenses

 

 

(483

)

 

 

(347

)

Equity in income of affiliates

 

 

(8,636

)

 

 

(10,060

)

Deferred income tax expenses

 

 

(72

)

 

 

8,889

 

Distributions from equity investees

 

 

12,323

 

 

 

12,049

 

Changes in assets and liabilities and other

 

 

(52,378

)

 

 

(64

)

Net cash provided by operating activities

 

 

83,652

 

 

 

150,565

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Additions to theatre properties and equipment

 

 

(80,163

)

 

 

(91,187

)

Proceeds from sale of theatre properties and equipment and other

 

 

477

 

 

 

3,835

 

(Investment in) return of investment from joint ventures and other, net

 

 

764

 

 

 

(228

)

Net cash used for investing activities

 

 

(78,922

)

 

 

(87,580

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Dividends paid to stockholders

 

 

(37,346

)

 

 

(33,760

)

Payroll taxes paid as a result of restricted stock withholdings

 

 

(2,695

)

 

 

(2,694

)

Repayments of long-term debt

 

 

(1,649

)

 

 

 

Payment of debt issue costs

 

 

(4,962

)

 

 

 

Fees paid related to debt amendments

 

 

(704

)

 

 

 

Payments on capital leases

 

 

(6,090

)

 

 

(4,989

)

Other

 

 

 

 

 

(294

)

Net cash used for financing activities

 

 

(53,446

)

 

 

(41,737

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

215

 

 

 

1,835

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

(48,501

)

 

 

23,083

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

522,547

 

 

 

561,235

 

End of period

 

$

474,046

 

 

$

584,318

 

 

 

 

 

 

 

 

 

 

Supplemental information (see Note 14)

 

 

 

 

 

 

 

 

 

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, 2017, 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, 2017, included in the Annual Report on Form 10-K filed February 23, 2018 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the three months ended March 31, 2018 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 (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC Topic 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.  ASC Topic 606 replaces most existing revenue recognition guidance in U.S. generally accepted accounting principles.  In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from the contracts with customers.  The Company adopted ASC Topic 606 effective January 1, 2018.  See Note 3 for further discussion.  

In February 2016, the FASB issued ASU 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 August 2016, the FASB issued ASU 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.  The Company adopted ASU 2016-15 effective January 1, 2018.  ASU 2016-15 did not have a material impact on the Company’s condensed consolidated financial statements.  

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, (“ASU 2016-16”).  The purpose of ASUS 2016-16 is to improve the accounting for the income tax consequences of intra-

8


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

entity transfers of assets other than inventory.  ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year.  A modified retrospective transition method should be used in the application of the amendments within ASU 2016-16 with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.  ASU 2016-16 did not have a material impact on the Company’s condensed consolidated financial statements.  

In May 2017, the FASB issued ASU 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 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 adopted ASU 2017-09 effective January 1, 2018.  ASU 2017-09 did not have a material impact on the Company’s condensed consolidated financial statements.

3.

Revenue Recognition

Revenue Recognition Policy

Admissions and concession revenues are recognized when sales are made at the box office and concession stand, respectively.  Other revenues include screen advertising and other ancillary revenues such as vendor marketing promotions, meeting rentals and electronic video games located in the Company’s theatres.  The Company records proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognizes admissions or concession revenue when a holder redeems the card or certificate. Additionally, the Company recognizes unredeemed gift cards and other advanced sale-type certificates as a proportion of actual redemptions as other revenues, which is an estimate primarily based on the Company’s historical experience with such cards and certificates.

Screen advertising revenues are generally recognized over the period that the related advertising is delivered on-screen or in-theatre. 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.

See additional revenue recognition policy considerations, updated for the adoption of ASC Topic 606, below.  

Adoption of ASC Topic 606

The Company adopted ASC 606, Revenue from Contracts with Customers, effective January 1, 2018 under the modified retrospective method (cumulative-effect) and therefore, revenue amounts as presented on the condensed consolidated statements of income have not been adjusted for prior periods presented.

Changes to the way in which the Company recognizes revenue resulted in the following impacts to the condensed consolidated statements of income:

 

a)  

Recording of incremental other revenue and interest expense related to the significant financing component of the Company’s Exhibitor Services Agreement (“ESA”) with NCM, LLC (“NCM”).  See further discussion below, including the estimated interest rates assumed in determining the amount of interest expense.  

 

b)

Deferral of a portion of admissions and concession revenues for transactions that include the issuance of loyalty points to customers. To determine the amount of revenues to defer upon issuance of points to customers under its points-based loyalty programs, the Company estimated the values of the rewards expected to be redeemed by its customers for those points.  The estimates are based on the rewards that have historically been offered under the loyalty programs, which the Company believes is representative of the rewards to be offered in the future.

 

c)

Increase in other revenues and an increase in utilities and other expenses due to presentation of transactional fees on a gross versus net basis.

 

d)

Increase in other revenues due to the change in amortization methodology for deferred revenue – NCM that is now amortized on a straight-line basis and effective for the entire term of the ESA. As a result of the change in amortization method, the Company recorded a cumulative effect of accounting change adjustment of $40,526, net of taxes, in retained earnings on January 1, 2018 (see also Note 6).  

 

9


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The above noted changes increased (decreased) admissions, concession and other revenue by ($1,302), ($545) and $27,459, respectively, for the three months ended March 31, 2018.

 

The Company applied the practical expedient to exclude sales and other similar taxes collected from customers from its transaction price for purposes of recording revenues, as such revenues are presented net of such taxes.

 

Disaggregation of Revenue

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

 

 

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 15 for additional information by segment.

The following table presents revenues for the three months ended March 31, 2018, disaggregated based on timing of revenue recognition (see Revenue Recognition Policy above).

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Goods and services transferred at a point in time

 

$

575,826

 

 

$

166,149

 

 

$

741,975

 

Goods and services transferred over time

 

 

20,517

 

 

 

17,479

 

 

 

37,996

 

Total

 

$

596,343

 

 

$

183,628

 

 

$

779,971

 

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 15 for additional information by segment.

Deferred Revenues

The following table presents changes in the Company’s deferred revenues for the three months ended March 31, 2018.  

Deferred Revenues

 

Deferred Revenue - NCM

 

 

Other Deferred Revenues (1)

 

 

Total

 

Balance at January 1, 2018

 

$

351,706

 

 

$

86,498

 

 

$

438,204

 

  Impact of adoption of ASC Topic 606

 

 

(53,605

)

 

 

 

 

 

(53,605

)

  Amounts recognized as accounts receivable

 

 

 

 

 

9,119

 

 

 

9,119

 

  Cash received from customers in advance

 

 

 

 

 

22,271

 

 

 

22,271

 

  Common units received from NCM (see Note 7)

 

 

5,012

 

 

 

 

 

 

5,012

 

  Revenue recognized during period

 

 

(3,891

)

 

 

(33,613

)

 

 

(37,504

)

  Foreign currency translation adjustments

 

 

 

 

 

(75

)

 

 

(75

)

Balance at March 31, 2018

 

$

299,222

 

 

$

84,200

 

 

$

383,422

 

10


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

 

(1)

Includes liabilities associated with outstanding gift cards and SuperSavers, points or rebates outstanding under the Company’s loyalty and membership programs and revenues not yet recognized for screen advertising and other promotional activities. Classified as accounts payable and accrued expenses or other long-term liabilities on the condensed consolidated balance sheet.

The table below summarizes the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of March 31, 2018 and when the Company expects to recognize this revenue.

 

 

Twelve Months Ended March 31,

 

 

 

 

 

 

 

 

 

Remaining Performance Obligations

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

Thereafter

 

 

Total

 

Deferred revenue - NCM

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

220,067

 

 

$

299,222

 

Deferred revenue - other

 

 

73,338

 

 

 

10,799

 

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

84,200

 

Total

 

$

89,169

 

 

$

26,630

 

 

$

15,894

 

 

$

15,831

 

 

$

15,831

 

 

$

220,067

 

 

$

383,422

 

Accounts receivable as of March 31, 2018 included approximately $47,539 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, 2018.

Significant Financing Component

As discussed further in Note 7, in connection with the completion of the NCM, Inc. (“NCMI”) initial public offering, the Company amended and restated its ESA with NCM and received approximately $174,000 in cash consideration from NCM.  The proceeds were recorded as deferred revenue and are being amortized over the term of the modified ESA, or through February 2037.  In addition to the consideration received upon the ESA modification during 2007, the Company also receives consideration in the form of common units from NCM, at each annual common unit adjustment settlement, in exchange for exclusive access to the Company’s newly opened domestic screens under the ESA.  See Note 7 for additional information regarding the common unit adjustment and related accounting.   Due to the significant length of time between receiving the consideration from NCM and fulfillment of the related performance obligation, the ESA includes an implied significant financing component, as per the guidance in ASC Topic 606.  

As a result of the significant financing component on deferred revenue - NCM, the Company recognized incremental screen advertising revenue and an offsetting interest expense of $4,979 during the three months ended March 31, 2018. The interest expense was calculated using the Company’s incremental borrowing rates at the time when the cash and each tranche of common units were received from NCM, which ranged from 5.5% to 8.0%.

 

4.

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.

11


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Numerator:

 

 

 

 

 

 

 

 

Net income attributable to Cinemark Holdings, Inc.

 

$

62,021

 

 

$

79,728

 

Earnings allocated to participating share-based awards (1)

 

 

(297

)

 

 

(382

)

Net income attributable to common stockholders

 

$

61,724

 

 

$

79,346

 

 

 

 

 

 

 

 

 

 

Denominator (shares in thousands):

 

 

 

 

 

 

 

 

Basic weighted average common stock outstanding

 

 

115,883

 

 

 

115,629

 

Common equivalent shares for restricted stock units

 

 

260

 

 

 

286

 

Diluted

 

 

116,143

 

 

 

115,915

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to common

   stockholders

 

$

0.53

 

 

$

0.68

 

Diluted earnings per share attributable to common

   stockholders

 

$

0.53

 

 

$

0.68

 

 

(1)

For the three months ended March 31, 2018 and 2017, a weighted average of approximately 556 and 559 shares of unvested restricted stock, respectively, were considered participating securities.

5.

Long Term Debt Activity

Senior Secured Credit Facility

On March 29, 2018, Cinemark USA, Inc., our wholly-owned subsidiary, amended its senior secured credit facility to extend the maturity of the term loan to March 29, 2025, reduce the rate at which the term loan bears interest by 0.25% and to reduce the amount of real property required to be mortgaged to secure the loans. Under the amended facility, quarterly principal payments of $1,649 are due on the term loan through December 31, 2024, with a final principal payment of $613,351 due on March 29, 2025. The Company incurred debt issue costs of approximately $4,962 in connection with the amendment, which are reflected as a reduction of long term debt on the condensed consolidated balance sheet as of March 31, 2018.  As a result of the amendment, the Company wrote-off $780 of unamortized debt issue costs and incurred approximately $704 in legal and other fees, both of which are reflected as loss on debt amendments on the condensed consolidated statements of income for the three months ended March 31, 2018.  

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 820, Fair Value Measurement (“ASC Topic 820”). The carrying value of the Company’s long-term debt was $1,815,646 and $1,817,295 as of March 31, 2018 and December 31, 2017, respectively, excluding unamortized debt discounts and debt issue costs. The fair value of the Company’s long-term debt was $1,814,853 and $1,840,918 as of March 31, 2018 and December 31, 2017, respectively.

12


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

6.

Equity

Below is a summary of changes in stockholders’ equity attributable to Cinemark Holdings, Inc., noncontrolling interests and total equity for the three months ended March 31, 2018 and 2017:

 

 

 

Cinemark

 

 

 

 

 

 

 

 

 

 

 

Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

 

Stockholders’

 

 

Noncontrolling

 

 

Total

 

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at January 1, 2018

 

$

1,393,795

 

 

$

11,893

 

 

$

1,405,688

 

Cumulative effect of change in accounting principle, net of taxes of $13,079 (see Note 3)

 

 

40,526

 

 

 

 

 

 

40,526

 

Share based awards compensation expense

 

 

3,426

 

 

 

 

 

 

3,426

 

Stock withholdings related to share based awards that vested during the three months ended March 31, 2018

 

 

(2,695

)

 

 

 

 

 

(2,695

)

Dividends paid to stockholders (1)

 

 

(37,346

)

 

 

 

 

 

(37,346

)

Dividends accrued on unvested restricted stock unit awards (1)

 

 

(125

)

 

 

 

 

 

(125

)

Net income

 

 

62,021

 

 

 

156

 

 

 

62,177

 

Other comprehensive income in equity method investees

 

 

136

 

 

 

 

 

 

136

 

Foreign currency translation adjustments

 

 

204

 

 

 

 

 

 

204

 

Balance at March 31, 2018

 

$

1,459,942

 

 

$

12,049

 

 

$

1,471,991

 

 

 

(1)

The Company’s board of directors declared a cash dividend for the fourth quarter of 2017 in the amount of $0.32 per share of common stock payable to stockholders of record on March 8, 2018.  The dividend was paid on March 22, 2018.  

 

 

 

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

 

 

3,241

 

 

 

 

 

3,241

 

Stock withholdings related to share based awards that

   vested during the three months ended March 31, 2017

 

 

(2,694

)

 

 

 

 

(2,694

)

Dividends paid to stockholders (2)

 

 

(33,760

)

 

 

 

 

(33,760

)

Dividends accrued on unvested restricted stock unit

   awards (2)

 

 

(153

)

 

 

 

 

(153

)

Dividends paid to noncontrolling interests

 

 

 

 

(294

)

 

 

(294

)

Net income

 

 

79,728

 

 

 

466

 

 

 

80,194

 

Other comprehensive income in equity method investees

 

 

198

 

 

 

 

 

198

 

Foreign currency translation adjustments

 

 

13,342

 

 

 

 

 

13,342

 

Balance at March 31, 2017

 

$

1,321,720