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EX-10.2 - EX-10.2 - Cinemark Holdings, Inc.cnk-ex102_327.htm
EX-10.1 - EX-10.1 - Cinemark Holdings, Inc.cnk-ex101_328.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 June 30, 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 July 31, 2018, 116,829,079 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 June 30, 2018 and December 31, 2017 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2018 and 2017 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017 (unaudited)

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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

 

26

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

38

 

 

 

 

 

PART II.     OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

39

 

 

 

 

 

 

Item 1A.

Risk Factors

 

39

 

 

 

 

 

 

Item 6.

Exhibits

 

40

 

 

 

 

 

SIGNATURES

 

41

 

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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

504,712

 

 

$

522,547

 

Inventories

 

 

17,685

 

 

 

17,507

 

Accounts receivable

 

 

80,308

 

 

 

89,250

 

Current income tax receivable

 

 

4,815

 

 

 

11,730

 

Prepaid expenses and other

 

 

20,667

 

 

 

16,536

 

Total current assets

 

 

628,187

 

 

 

657,570

 

 

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

 

3,362,779

 

 

 

3,328,589

 

Less: accumulated depreciation and amortization

 

 

1,545,042

 

 

 

1,500,535

 

Theatre properties and equipment, net

 

 

1,817,737

 

 

 

1,828,054

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Goodwill

 

 

1,281,170

 

 

 

1,284,079

 

Intangible assets - net

 

 

332,506

 

 

 

336,761

 

Investment in NCM

 

 

199,019

 

 

 

200,550

 

Investments in and advances to affiliates

 

 

145,081

 

 

 

120,045

 

Long-term deferred tax asset

 

 

4,050

 

 

 

4,067

 

Deferred charges and other assets - net

 

 

47,488

 

 

 

39,767

 

Total other assets

 

 

2,009,314

 

 

 

1,985,269

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

4,455,238

 

 

$

4,470,893

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

7,984

 

 

$

7,099

 

Current portion of capital lease obligations

 

 

26,671

 

 

 

25,511

 

Current income tax payable

 

 

6,850

 

 

 

5,509

 

Current liability for uncertain tax positions

 

 

3,650

 

 

 

11,873

 

Accounts payable and accrued expenses

 

 

394,679

 

 

 

418,921

 

Total current liabilities

 

 

439,834

 

 

 

468,913

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,774,782

 

 

 

1,780,381

 

Capital lease obligations, less current portion

 

 

239,005

 

 

 

251,151

 

Long-term deferred tax liability

 

 

141,307

 

 

 

121,787

 

Long-term liability for uncertain tax positions

 

 

13,405

 

 

 

8,358

 

Deferred lease expenses

 

 

39,750

 

 

 

40,929

 

Deferred revenue - NCM

 

 

295,264

 

 

 

351,706

 

Other long-term liabilities

 

 

48,081

 

 

 

41,980

 

Total long-term liabilities

 

 

2,551,594

 

 

 

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, 121,449,393 shares issued and 116,829,079 shares outstanding

   at June 30, 2018 and 121,000,903 shares issued and 116,475,033 shares

   outstanding at December 31, 2017

 

 

121

 

 

 

121

 

Additional paid-in-capital

 

 

1,147,966

 

 

 

1,141,088

 

Treasury stock, 4,620,314 and 4,525,870 shares, at cost, at June 30, 2018

   and December 31, 2017, respectively

 

 

(79,259

)

 

 

(76,354

)

Retained earnings

 

 

691,910

 

 

 

582,222

 

Accumulated other comprehensive loss

 

 

(309,306

)

 

 

(253,282

)

Total Cinemark Holdings, Inc.'s stockholders' equity

 

 

1,451,432

 

 

 

1,393,795

 

Noncontrolling interests

 

 

12,378

 

 

 

11,893

 

Total equity

 

 

1,463,810

 

 

 

1,405,688

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,455,238

 

 

$

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

508,870

 

 

$

449,880

 

 

$

961,494

 

 

$

926,349

 

Concession

 

 

305,306

 

 

 

262,322

 

 

 

567,078

 

 

 

530,546

 

Other

 

 

74,877

 

 

 

38,993

 

 

 

140,452

 

 

 

73,910

 

Total revenues

 

 

889,053

 

 

 

751,195

 

 

 

1,669,024

 

 

 

1,530,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

287,206

 

 

 

246,556

 

 

 

528,121

 

 

 

499,374

 

Concession supplies

 

 

51,033

 

 

 

41,839

 

 

 

91,857

 

 

 

83,939

 

Salaries and wages

 

 

100,344

 

 

 

89,812

 

 

 

193,502

 

 

 

174,013

 

Facility lease expense

 

 

81,190

 

 

 

82,388

 

 

 

163,281

 

 

 

166,650

 

Utilities and other

 

 

115,602

 

 

 

91,053

 

 

 

225,034

 

 

 

179,410

 

General and administrative expenses

 

 

43,031

 

 

 

37,834

 

 

 

85,415

 

 

 

76,050

 

Depreciation and amortization

 

 

64,290

 

 

 

59,137

 

 

 

128,685

 

 

 

116,493

 

Impairment of long-lived assets

 

 

2,788

 

 

 

4,301

 

 

 

3,379

 

 

 

4,574

 

Loss on disposal of assets and other

 

 

16,901

 

 

 

54

 

 

 

20,840

 

 

 

888

 

Total cost of operations

 

 

762,385

 

 

 

652,974

 

 

 

1,440,114

 

 

 

1,301,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

126,668

 

 

 

98,221

 

 

 

228,910

 

 

 

229,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(28,466

)

 

 

(26,522

)

 

 

(55,581

)

 

 

(52,891

)

Loss on debt amendments

 

 

 

 

 

(246

)

 

 

(1,484

)

 

 

(246

)

Interest income

 

 

2,862

 

 

 

1,380

 

 

 

5,100

 

 

 

2,713

 

Foreign currency exchange gain (loss)

 

 

(5,199

)

 

 

(155

)

 

 

(3,821

)

 

 

1,434

 

Distributions from NCM

 

 

3,424

 

 

 

2,772

 

 

 

9,782

 

 

 

9,560

 

Interest expense - NCM

 

 

(4,913

)

 

 

 

 

 

(9,892

)

 

 

 

Equity in income of affiliates

 

 

6,414

 

 

 

5,805

 

 

 

15,050

 

 

 

15,865

 

Total other expense

 

 

(25,878

)

 

 

(16,966

)

 

 

(40,846

)

 

 

(23,565

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

100,790

 

 

 

81,255

 

 

 

188,064

 

 

 

205,849

 

Income taxes

 

 

18,326

 

 

 

29,445

 

 

 

43,423

 

 

 

73,845

 

Net income

 

$

82,464

 

 

$

51,810

 

 

$

144,641

 

 

$

132,004

 

Less:  Net income attributable to noncontrolling interests

 

 

329

 

 

 

571

 

 

 

485

 

 

 

1,037

 

Net income attributable to Cinemark Holdings, Inc.

 

$

82,135

 

 

$

51,239

 

 

$

144,156

 

 

$

130,967

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

116,091

 

 

 

115,785

 

 

 

115,988

 

 

 

115,707

 

Diluted

 

 

116,268

 

 

 

116,072

 

 

 

116,238

 

 

 

116,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.70

 

 

$

0.44

 

 

$

1.23

 

 

$

1.12

 

Diluted

 

$

0.70

 

 

$

0.44

 

 

$

1.23

 

 

$

1.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.32

 

 

$

0.29

 

 

$

0.64

 

 

$

0.58

 

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

82,464

 

 

$

51,810

 

 

$

144,641

 

 

$

132,004

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) in equity method

   investments

 

 

(116

)

 

 

(95

)

 

 

20

 

 

 

103

 

Foreign currency translation adjustments

 

 

(56,248

)

 

 

(18,401

)

 

 

(56,044

)

 

 

(3,508

)

Total other comprehensive loss, net of tax

 

 

(56,364

)

 

 

(18,496

)

 

 

(56,024

)

 

 

(3,405

)

Total comprehensive income, net of tax

 

 

26,100

 

 

 

33,314

 

 

 

88,617

 

 

 

128,599

 

Comprehensive income attributable to noncontrolling interests

 

 

(329

)

 

 

(571

)

 

 

(485

)

 

 

(1,037

)

Comprehensive income attributable to Cinemark

   Holdings, Inc.

 

$

25,771

 

 

$

32,743

 

 

$

88,132

 

 

$

127,562

 

 

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)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

144,641

 

 

$

132,004

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

126,981

 

 

 

115,755

 

Amortization of intangible and other assets and favorable/unfavorable leases

 

 

1,704

 

 

 

738

 

Amortization of long-term prepaid rents

 

 

1,236

 

 

 

989

 

Amortization of debt issue costs

 

 

2,913

 

 

 

3,063

 

Loss on debt amendments

 

 

1,484

 

 

 

246

 

Amortization of deferred revenues, deferred lease incentives and other

 

 

(10,762

)

 

 

(7,923

)

Impairment of long-lived assets

 

 

3,379

 

 

 

4,574

 

Share based awards compensation expense

 

 

6,878

 

 

 

6,444

 

Loss on disposal of assets and other

 

 

20,840

 

 

 

888

 

Deferred lease expenses

 

 

(932

)

 

 

(722

)

Equity in income of affiliates

 

 

(15,050

)

 

 

(15,865

)

Deferred income tax expenses

 

 

7,669

 

 

 

14,515

 

Distributions from equity investees

 

 

16,255

 

 

 

14,919

 

Changes in assets and liabilities and other

 

 

(27,333

)

 

 

(33,935

)

Net cash provided by operating activities

 

 

279,903

 

 

 

235,690

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Additions to theatre properties and equipment

 

 

(162,589

)

 

 

(182,800

)

Acquisitions of theatres in the U.S. and international markets, net of cash acquired

 

 

(11,508

)

 

 

(40,829

)

Proceeds from sale of theatre properties and equipment and other

 

 

2,135

 

 

 

14,521

 

Investment in joint ventures and other, net

 

 

(19,467

)

 

 

(466

)

Net cash used for investing activities

 

 

(191,429

)

 

 

(209,574

)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Dividends paid to stockholders

 

 

(74,723

)

 

 

(67,528

)

Payroll taxes paid as a result of stock withholdings

 

 

(2,905

)

 

 

(2,921

)

Repayments of long-term debt

 

 

(3,298

)

 

 

(1,427

)

Payment of debt issue costs

 

 

(5,103

)

 

 

(521

)

Fees paid related to debt amendments

 

 

(704

)

 

 

(246

)

Payments on capital leases

 

 

(12,377

)

 

 

(10,143

)

Other

 

 

 

 

 

(311

)

Net cash used for financing activities

 

 

(99,110

)

 

 

(83,097

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(7,199

)

 

 

(75

)

 

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

 

(17,835

)

 

 

(57,056

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

522,547

 

 

 

561,235

 

End of period

 

$

504,712

 

 

$

504,179

 

 

 

 

 

 

 

 

 

 

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 and six months ended June 30, 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”) 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. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, (“ASU 2018-10”). The amendments in ASU 2018-10 provide clarification of narrow aspects of the guidance issued in ASU 2016-02.  In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements, (“ASU 2018-11”). The amendments in ASU 2018-11 provide an additional transition method to adopt the amendments in ASU 2016-02.  Under this new transition method, an entity initially applies the amendments in ASU 2016-02 at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  Under this transition method, an entity is not required to use the modified transition method described in ASU 2016-02.  The Company plans to adopt the additional transition method provided in ASU 2018-11.  The Company is currently evaluating the impact of ASU 2016-02, ASU 2018-10 and ASU 2018-11 on its condensed consolidated financial statements.  The most significant impact of these amendments will be the recognition of new right-of-use assets and lease liabilities for assets related to leased theatres and certain leased equipment that are currently classified as operating leases.   The Company will adopt the amendments in ASU 2016-02, ASU 2018-10 and ASU 2018-11 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

8


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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.  As a result of the adoption of ASU 2016-15, cash paid of $246 related to the June 2017 amendment of the Company’s senior secured credit facility was reclassified from operating activities to financing activities for the six months ended June 30, 2017.  

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 ASU 2016-16 is to improve the accounting for the income tax consequences of intra-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.

9


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

3.

Revenue Recognition

Revenue Recognition Policy

The Company recognizes admissions and concession revenues when sales are made at the box office and concession stand, respectively.  Other revenues include screen advertising, transactional fees and other ancillary revenues such as vendor marketing promotions and meeting rentals 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).  

 

The above noted changes increased (decreased) admissions, concession and other revenue for the three and six months ended June 30, 2018 as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2018

 

 

June 30, 2018

 

Admissions revenues

 

$

(1,898

)

 

$

(3,200

)

Concession revenues

 

$

(662

)

 

$

(1,207

)

Other revenues

 

$

32,710

 

 

$

60,169

 

 

 

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.

 

 

10


CINEMARK HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Disaggregation of Revenue

The following table presents revenues for the three and six months ended June 30, 2018, disaggregated based on major type of good or service and by reportable operating segment.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2018

 

 

June 30, 2018

 

 

 

U.S.

 

International

 

 

 

 

 

U.S.

 

International

 

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

Operating

 

Operating

 

 

 

 

Major Goods/Services

 

Segment (1)

 

Segment

 

Consolidated

 

 

Segment (1)

 

Segment

 

Consolidated

 

Admissions revenues

 

$

408,863

 

$

100,007

 

$

508,870

 

 

$

758,215

 

$

203,279

 

$

961,494

 

Concession revenues

 

 

249,618

 

 

55,688

 

 

305,306

 

 

 

453,368

 

 

113,710

 

 

567,078

 

Screen advertising and promotional revenues

 

 

21,051

 

 

15,446

 

 

36,497

 

 

 

39,230

 

 

29,715

 

 

68,945

 

Other revenues

 

 

29,542

 

 

8,838

 

 

38,380

 

 

 

54,604

 

 

16,903

 

 

71,507

 

Total revenues

 

$

709,074

 

$

179,979

 

$

889,053

 

 

$

1,305,417

 

$

363,607

 

$

1,669,024

 

 

(1)

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

The following table presents revenues for the three and six months ended June 30, 2018, disaggregated based on timing of revenue recognition (see Revenue Recognition Policy above).

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2018

 

 

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Goods and services transferred at a point in time

 

$

686,463

 

 

$

161,350

 

 

$

847,813

 

 

$

1,262,289

 

 

$

327,499

 

 

$

1,589,788

 

Goods and services transferred over time

 

 

22,611

 

 

 

18,629

 

 

 

41,240

 

 

 

43,128

 

 

 

36,108

 

 

 

79,236

 

Total

 

$

709,074

 

 

$

179,979

 

 

$

889,053

 

 

$

1,305,417

 

 

$

363,607

 

 

$

1,669,024

 

 

(1)

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

Deferred Revenues

The following table presents changes in the Company’s deferred revenues for the six months ended June 30, 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

)