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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, 2020

or

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

SECURITIES EXCHANGE ACT OF 1934

 

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

 

 

Plano, Texas

 

75093

(Address of principal executive offices)

 

(Zip Code)

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

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

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $.001 per share

CNK

New York Stock Exchange

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

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

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

As of May 15, 2020, 117,589,645 shares of common stock were issued and outstanding.  

 

 


 

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

 

 

 

 

 

Page

PART I.     FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Loss) for the three months ended March 31, 2020 and 2019 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

 

Item 2.

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

 

30

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

40

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

40

 

 

 

 

 

PART II.     OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

41

 

 

 

 

 

 

Item 1A.

Risk Factors

 

41

 

 

 

 

 

 

Item 6.

Exhibits

 

42

 

 

 

 

 

SIGNATURES

 

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)

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

479,399

 

 

$

488,313

 

Inventories

 

 

17,972

 

 

 

21,686

 

Accounts receivable

 

 

51,641

 

 

 

83,722

 

Current income tax receivable

 

 

25,294

 

 

 

4,082

 

Prepaid expenses and other

 

 

13,361

 

 

 

37,187

 

Total current assets

 

 

587,667

 

 

 

634,990

 

 

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

 

3,270,551

 

 

 

3,348,237

 

Less: accumulated depreciation and amortization

 

 

1,612,226

 

 

 

1,612,990

 

Theatre properties and equipment, net

 

 

1,658,325

 

 

 

1,735,247

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

 

1,338,069

 

 

 

1,383,080

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Goodwill

 

 

1,268,559

 

 

 

1,283,371

 

Intangible assets, net

 

 

318,657

 

 

 

321,769

 

Investment in NCM

 

 

265,371

 

 

 

265,792

 

Investments in and advances to affiliates

 

 

151,232

 

 

 

155,285

 

Long-term deferred tax asset

 

 

8,851

 

 

 

9,369

 

Deferred charges and other assets, net

 

 

36,162

 

 

 

39,114

 

Total other assets

 

 

2,048,832

 

 

 

2,074,700

 

Total assets

 

$

5,632,893

 

 

$

5,828,017

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

6,595

 

 

$

6,595

 

Current portion of operating lease obligations

 

 

213,941

 

 

 

217,406

 

Current portion of finance lease obligations

 

 

15,693

 

 

 

15,432

 

Current income tax payable

 

 

3,969

 

 

 

5,195

 

Current liability for uncertain tax positions

 

 

13,446

 

 

 

13,446

 

Accounts payable and accrued expenses

 

 

346,783

 

 

 

450,726

 

Total current liabilities

 

 

600,427

 

 

 

708,800

 

Long-term liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,869,821

 

 

 

1,771,342

 

Operating lease obligations, less current portion

 

 

1,186,416

 

 

 

1,223,462

 

Finance lease obligations, less current portion

 

 

136,967

 

 

 

141,017

 

Long-term deferred tax liability

 

 

157,918

 

 

 

141,836

 

Long-term liability for uncertain tax positions

 

 

939

 

 

 

848

 

NCM screen advertising advances

 

 

350,104

 

 

 

348,354

 

Other long-term liabilities

 

 

64,736

 

 

 

44,036

 

Total long-term liabilities

 

 

3,766,901

 

 

 

3,670,895

 

Commitments and contingencies (see Note 19)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Cinemark Holdings, Inc.'s stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value: 300,000,000 shares authorized, 122,328,781 shares issued and 117,518,721 shares outstanding at March 31, 2020 and 121,863,515 shares issued and 117,151,656 shares outstanding at December 31, 2019

 

 

122

 

 

 

122

 

Additional paid-in-capital

 

 

1,174,150

 

 

 

1,170,039

 

Treasury stock, 4,810,060 and 4,711,859 shares, at cost, at March 31, 2020 and December 31, 2019, respectively

 

 

(84,258

)

 

 

(81,567

)

Retained earnings

 

 

585,174

 

 

 

687,332

 

Accumulated other comprehensive loss

 

 

(421,908

)

 

 

(340,112

)

Total Cinemark Holdings, Inc.'s stockholders' equity

 

 

1,253,280

 

 

 

1,435,814

 

Noncontrolling interests

 

 

12,285

 

 

 

12,508

 

Total equity

 

 

1,265,565

 

 

 

1,448,322

 

Total liabilities and equity

 

$

5,632,893

 

 

$

5,828,017

 

 

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)

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

 

Admissions

 

 

$

292,462

 

 

$

395,540

 

Concession

 

 

 

190,356

 

 

 

251,324

 

Other

 

 

 

60,798

 

 

 

67,859

 

Total revenues

 

 

 

543,616

 

 

 

714,723

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

 

156,617

 

 

 

210,077

 

Concession supplies

 

 

 

34,812

 

 

 

43,071

 

Salaries and wages

 

 

 

87,544

 

 

 

96,136

 

Facility lease expense

 

 

 

82,241

 

 

 

85,613

 

Utilities and other

 

 

 

100,523

 

 

 

110,637

 

General and administrative expenses

 

 

 

41,018

 

 

 

37,976

 

Depreciation and amortization

 

 

 

65,256

 

 

 

64,462

 

Impairment of long-lived assets

 

 

 

16,619

 

 

 

5,584

 

Loss on disposal of assets and other

 

 

 

1,905

 

 

 

3,799

 

Total cost of operations

 

 

 

586,535

 

 

 

657,355

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

(42,919

)

 

 

57,368

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

(24,666

)

 

 

(25,141

)

Interest income

 

 

 

2,084

 

 

 

2,691

 

Foreign currency exchange gain (loss)

 

 

 

(4,848

)

 

 

22

 

Distributions from NCM

 

 

 

5,224

 

 

 

4,548

 

Interest expense - NCM

 

 

 

(5,891

)

 

 

(4,782

)

Equity in income of affiliates

 

 

 

8,486

 

 

 

10,404

 

Total other expense

 

 

 

(19,611

)

 

 

(12,258

)

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

 

(62,530

)

 

 

45,110

 

Income taxes

 

 

 

(3,108

)

 

 

11,917

 

Net income (loss)

 

 

$

(59,422

)

 

$

33,193

 

Less:  Net income attributable to noncontrolling interests

 

 

 

169

 

 

 

465

 

Net income (loss) attributable to Cinemark Holdings, Inc.

 

 

$

(59,591

)

 

$

32,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

116,496

 

 

 

116,179

 

Diluted

 

 

 

116,496

 

 

 

116,418

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Basic

 

 

$

(0.51

)

 

$

0.28

 

Diluted

 

 

$

(0.51

)

 

$

0.28

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

Net income (loss)

 

 

$

(59,422

)

 

$

33,193

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

Unrealized loss due to fair value adjustments on interest rate swap agreements, net of taxes of $2,230 and $1,069, net of settlements

 

 

 

(24,171

)

 

 

(3,311

)

Other comprehensive loss in equity method investments

 

 

 

 

 

 

(71

)

Foreign currency translation adjustments

 

 

 

(57,625

)

 

 

755

 

Total other comprehensive loss, net of tax

 

 

 

(81,796

)

 

 

(2,627

)

Total comprehensive income (loss), net of tax

 

 

 

(141,218

)

 

 

30,566

 

Comprehensive income attributable to noncontrolling interests

 

 

 

(169

)

 

 

(465

)

Comprehensive income (loss) attributable to Cinemark Holdings, Inc.

 

 

$

(141,387

)

 

$

30,101

 

 

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,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(59,422

)

 

$

33,193

 

Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

64,005

 

 

 

63,247

 

Amortization of intangible and other assets

 

 

1,251

 

 

 

1,215

 

Amortization of debt issue costs

 

 

1,328

 

 

 

1,328

 

Amortization of NCM screen advertising advances and other deferred revenues

 

 

(7,852

)

 

 

(4,021

)

Interest accrued on NCM screen advertising advances

 

 

5,891

 

 

 

 

Impairment of long-lived assets

 

 

16,619

 

 

 

5,584

 

Share based awards compensation expense

 

 

4,111

 

 

 

2,970

 

Loss on disposal of assets and other

 

 

1,905

 

 

 

3,799

 

Non-cash rent expense

 

 

(591

)

 

 

(819

)

Equity in income of affiliates

 

 

(8,486

)

 

 

(10,404

)

Deferred income tax expenses

 

 

15,364

 

 

 

(10,964

)

Distributions from equity investees

 

 

16,606

 

 

 

14,342

 

Changes in assets and liabilities and other

 

 

(66,290

)

 

 

4,814

 

Net cash provided by (used for) operating activities

 

 

(15,561

)

 

 

104,284

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Additions to theatre properties and equipment

 

 

(34,143

)

 

 

(57,569

)

Proceeds from sale of theatre properties and equipment and other

 

 

55

 

 

 

57

 

Investment in joint ventures and other, net

 

 

(50

)

 

 

 

Net cash used for investing activities

 

 

(34,138

)

 

 

(57,512

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Dividends paid to stockholders

 

 

(42,311

)

 

 

(39,797

)

Payroll taxes paid as a result of stock withholdings

 

 

(2,691

)

 

 

(1,947

)

Proceeds from revolving line of credit

 

 

98,800

 

 

 

 

Repayments of long-term debt

 

 

(1,649

)

 

 

(1,649

)

Payments on finance leases

 

 

(3,789

)

 

 

(3,517

)

Other

 

 

(392

)

 

 

(1,000

)

Net cash provided by (used for) financing activities

 

 

47,968

 

 

 

(47,910

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(7,183

)

 

 

110

 

 

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

 

(8,914

)

 

 

(1,028

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

488,313

 

 

 

426,222

 

End of period

 

$

479,399

 

 

$

425,194

 

 

 

 

 

 

 

 

 

 

Supplemental information (see Note 16)

 

 

 

 

 

 

 

 

 

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 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, 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:

 

 

directors of the Company and its chief executive officer have elected to take no salary, and many of its executives have voluntarily reduced their salaries by 80% while the Company’s theatres remain closed;

 

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;

 

suspended the quarterly dividend;

 

implemented a formal daily review and approval process by the Company’s chief financial officer for all outgoing procurement and payment requests;

 

laid off over 17,500 domestic hourly theatre employees, furloughed 50% of headquarter employees at 20% of salary (with full benefits) and reduced salaries of remaining employees by 50% and pursued similar actions in international markets to the extent permitted by local laws; which will significantly reduce salaries and wages expenses and general administrative expenses while theatres are closed; and

 

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:

 

 

receive an approximately $20,000 cash tax refund in 2020 related to qualified improvement property expenditures from 2018 and 2019;

 

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.

 

 

 

Three Months Ended

 

 

 

March 31,

 

Lease Cost

Classification

2020

 

 

2019

 

Operating lease costs

 

 

 

 

 

 

 

 

Equipment (1)

Utilities and other

$

1,541

 

 

$

1,743

 

Real Estate (2)(3)

Facility lease expense

 

81,658

 

 

 

84,785

 

Total operating lease costs

 

$

83,199

 

 

$

86,528

 

 

 

 

 

 

 

 

 

 

Finance lease costs

 

 

 

 

 

 

 

 

Amortization of leased assets

Depreciation and amortization

$

3,707

 

 

$

3,740

 

Interest on lease liabilities

Interest expense

 

1,851

 

 

 

2,021

 

Total finance lease costs

 

$

5,558

 

 

$

5,761

 

(1)

Includes approximately $413 and $620 of short-term lease payments for the three months ended March 31, 2020 and 2019, respectively.  

(2)

Includes approximately $12,247 and $15,934 of variable lease payments based on a change in index, such as CPI or inflation, variable payments based on revenues or attendance and variable common area maintenance costs for the three months ended March 31, 2020 and 2019, respectively.

(3)

Approximately $460 and $402 of lease payments are included in general and administrative expenses primarily related to office leases for the three months ended March 31, 2020 and 2019, respectively.  

 

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.

 

 

 

Three Months Ended

 

 

 

March 31,

 

Other Information

 

2020

 

 

2019

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

Cash outflows for operating leases

 

$

70,539

 

 

$

69,974

 

Cash outflows for finance leases - operating activities

 

$

1,811

 

 

$

1,974

 

Cash outflows for finance leases - financing activities

 

$

3,789

 

 

$

3,517

 

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

 

 

 

 

 

 

 

 

Operating lease liabilities - real estate

 

$

37,615

 

 

$

 

Operating lease liabilities - equipment

 

$

188

 

 

$

101

 

Finance lease liabilities

 

$

 

 

$

 

As of March 31, 2020, the Company had signed lease agreements with total noncancelable lease payments of approximately $220,403 related to theatre leases that had not yet commenced.  The timing of lease commencement is dependent on the completion of construction of the related theatre facility.  Additionally, these amounts are based on estimated square footage and costs to construct each facility and may be subject to adjustment upon final completion of each construction project.  In accordance with ASC Topic 842, fixed minimum lease payments related to these theatres are not included in the right-of-use assets and lease liabilities as of March 31, 2020.  There were no noncancelable lease agreements signed, but not yet commenced, related to equipment leases as of March 31, 2020.  


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 $19,016 and $31,620 of receivables, respectively, 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, 2020 or March 31, 2019.

 

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.

 

 

Three Months Ended

 

 

 

March 31, 2020

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

Major Goods/Services

 

Segment (1)

 

 

Segment