# Cinemark Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Cinemark Holdings, Inc.](/companies/cnk.md) (CIK 1385280)
- Form: 10-Q
- Filed: 2022-11-04
- Accepted by EDGAR: Nov 4, 2022, 06:41 ET
- Period: 2022-09-30
- Accession: 0000950170-22-022048
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1385280/000095017022022048/cnk-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1385280/000095017022022048/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $650.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $1.85bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$24.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$171.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.20 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$1.43 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.20 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$1.43 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 118,400,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 118,100,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $27.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $65.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $631.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $800.9m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $4.85bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $628.4m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2022-09-30 | $2.47bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-09-30 | $22.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-09-30 | $194.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 68,372 characters.

Cinemark Holdings, Inc. is a holding company and its wholly-owned subsidiary is Cinemark USA, Inc. Holdings consolidates CUSA for financial statement purposes. CUSA comprises approximately the entire balance of Holdings’ assets, liabilities and operating cash flows. In addition, CUSA’s revenue comprises 100% and its operating expenses comprise nearly 100% of Holdings’ revenue and operating expenses, respectively. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes and schedules included elsewhere in this report. Where it is important to distinguish between the entities, we either refer specifically to Holdings or CUSA. Otherwise, all references to “we,” “our,” “us,” “the Company” or "Cinemark" relate to Cinemark Holdings, Inc. and its consolidated subsidiaries and all references to CUSA relate to CUSA and its consolidated subsidiaries. Amounts included in the following discussion, except for screens, average screens, average ticket price and concessions revenue per patron, are rounded in millions.

We are a leader in the motion picture exhibition industry, with theatres in the U.S., Brazil, Argentina, Chile, Colombia, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Curacao and Paraguay. As of September 30, 2022, we managed our business under two reportable operating segments – U.S. markets and international markets. See Note 16 to our condensed consolidated financial statements.

#### Impact of COVID-19 Pandemic

The COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry with widespread social and economic effects. We temporarily closed our theatres in the U.S. and Latin America during March of 2020 at the onset of the COVID-19 outbreak. During that time, we implemented various cash preservation strategies, including, but not limited to, temporary personnel and salary reductions, halting non-essential operating and capital expenditures, negotiating modified timing and/or abatement of contractual payments with landlords and other major suppliers, and suspending quarterly dividends paid by Holdings to its shareholders.

Throughout 2020 and 2021 we reopened theatres as local restrictions and the status of the COVID-19 pandemic would allow. All of our domestic and international theatres were reopened by the end of the fourth quarter of 2021. The industry’s recovery from the COVID-19 pandemic is still underway and is contingent upon the volume of new film content available, as well as the box office performance of new film content released, consumer sentiment around movie-going and government restrictions. The industry is also adjusting to the evolution of the exclusive theatrical window, competition from streaming platforms, supply chain constraints, inflationary impacts and other economic factors.

#### Revenue and Expense

We generate revenue primarily from filmed entertainment box office receipts and concession sales with additional revenue from screen advertising, screen rental and other revenue streams, such as transactional fees, vendor marketing promotions, studio trailer placements, meeting rentals and electronic video games located in some of our theatres. We also offer alternative entertainment, such as the Metropolitan Opera, concert events, in-theatre gaming, live and pre-recorded sports programs and other special events in our theatres through Fathom Entertainment (operated by AC JV, LLC). NCM provides our domestic theatres with various forms of in-theatre advertising. Our Flix Media subsidiaries provide screen advertising and alternative content for our international circuit and to other international exhibitors.

Films leading the box office during the nine months ended September 30, 2022 included the carryover of *Spider-Man: No Way Home* as well as new releases including *Top Gun: Maverick, Doctor Strange in the Multiverse of Madness, Jurassic World: Dominion, The Batman, Minions: The Rise of Gru, Thor: Love and Thunder, Sonic the Hedgehog 2, Elvis, Uncharted, Nope, Lightyear, The Lost City* and *Bullet Train.* Films scheduled for release during the three months ending December 31, 2022 include *Black Panther: Wakanda Forever, Black Adam, Puss in Boots: The Last Wish, Smile, Ticket to Paradise* and the highly anticipated sequel, *Avatar: The Way of Water,* among other films. There are several key factors impacting the industry box office's recovery from the COVID-19 pandemic, including the availability and quality of new films released, the duration of the exclusive theatrical windows and evolving consumer behavior with competition from streaming platforms and other forms of entertainment.

Film rental costs are variable in nature and fluctuate with our admissions revenue. Film rental costs as a percentage of revenue are generally higher for periods in which more blockbuster films are released. The Company received virtual print fees from studios for certain of its international locations, which are included as a contra-expense in film rental and advertising costs on the condensed consolidated statements of loss. However, these costs were fully recovered during 2021. Virtual print fees (VPFs) were not received during 2022 and will not be received in future periods. Advertising costs, which are expensed as incurred, are primarily related to reigniting theatrical moviegoing, increasing loyalty to Cinemark and building our audiences. These expenses vary depending on the timing and length of such campaigns.

Concession supplies expense is variable in nature and fluctuates with our concession revenue and product mix. Supply chain interruptions and inflationary pressures have impacted, and may continue to impact, product costs and product availability in the near term. We source products from a variety of partners around the world to minimize supply chain interruptions and price increases, wherever possible.

Although salaries and wages include a fixed cost component (i.e., the minimum staffing costs to operate a theatre facility during non-peak periods), salaries and wages tend to move in relation to revenue as theatre staffing is adjusted to respond to changes in attendance. Staffing levels may vary based on the amenities offered at a location, such as full-service restaurants, bars or expanded food and beverage options. In certain international locations, staffing levels are also subject to local regulations. Labor market conditions and inflationary pressures have driven increases in wages across our labor base and increases may continue in the future.

Facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment. Certain leases are subject to percentage rent only, while others are subject to percentage rent in addition to their fixed monthly rent if a target annual performance level is achieved. Facility lease expense as a percentage of revenue is also affected by the number of theatres under operating leases, the number of theatres under finance leases and the number of owned theatres.

Utilities and other costs include both fixed and variable costs and primarily consist of utilities, property taxes, janitorial costs, credit card fees, third party ticket sales commissions, repairs and maintenance expenses, security services and expenses for the maintenance and monitoring of projection and sound equipment.

General and administrative expense to support the overall management of the Company is primarily fixed in nature with certain variable expenses. Fixed expenses include salaries and wages and benefits costs for our corporate office personnel, facility expenses for our corporate and other offices, software maintenance costs and audit fees. Some variable expenses may include incentive compensation, consulting and legal fees, supplies and other costs that are not specifically associated with the operations of our theatres.

### Results of Operations

The following table sets forth, for the periods indicated, the amounts for certain items reflected in operating income (loss) of Holdings along with each of those items as a percentage of revenue.

| Operating data (in millions): Revenue | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Admissions | $324.6 | $225.5 | $942.3 | $435.1 |
| Concession | 253.6 | 164.2 | 712.6 | 313.5 |
| Other | 72.2 | 45.1 | 200.1 | 95.2 |
| Total revenue | $650.4 | $434.8 | $1,855.0 | $843.8 |
| Cost of operations |  |  |  |  |
| Film rentals and advertising | 180.9 | 117.0 | 531.1 | 216.8 |
| Concession supplies | 46.3 | 28.2 | 128.8 | 54.2 |
| Salaries and wages | 97.0 | 67.6 | 277.0 | 149.2 |
| Facility lease expense | 77.2 | 68.8 | 231.2 | 200.8 |
| Utilities and other | 110.4 | 81.7 | 303.8 | 192.0 |
| General and administrative expense (1) | 45.1 | 38.6 | 134.0 | 111.8 |
| Depreciation and amortization | 58.3 | 67.2 | 181.0 | 202.3 |
| Impairment of long-lived and other assets | 15.2 | 7.5 | 107.5 | 7.5 |
| Restructuring costs | — | (0.4) | (0.2) | (1.3) |
| (Gain) loss on disposal of assets and other | 1.2 | 1.1 | (6.4) | 7.9 |
| Total cost of operations (1) | 631.6 | 477.3 | 1,887.8 | 1,141.2 |
| Operating income (loss) (1) | $18.8 | $(42.5) | $(32.8) | $(297.4) |
| **Operating data as a percentage of total revenue:** |  |  |  |  |
| Revenue |  |  |  |  |
| Admissions | 49.9% | 51.9% | 50.8% | 51.6% |
| Concession | 39.0% | 37.8% | 38.4% | 37.2% |
| Other | 11.1% | 10.3% | 10.8% | 11.2% |
| Total revenue | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of operations (2) |  |  |  |  |
| Film rentals and advertising | 55.7% | 51.9% | 56.4% | 49.8% |
| Concession supplies | 18.3% | 17.2% | 18.1% | 17.3% |
| Salaries and wages | 14.9% | 15.5% | 14.9% | 17.7% |
| Facility lease expense | 11.9% | 15.8% | 12.5% | 23.8% |
| Utilities and other | 17.0% | 18.8% | 16.4% | 22.8% |
| General and administrative expense | 6.9% | 8.9% | 7.2% | 13.2% |
| Depreciation and amortization | 9.0% | 15.5% | 9.8% | 24.0% |
| Impairment of long-lived and other assets | 2.3% | 1.7% | 5.8% | 0.9% |
| Restructuring costs | —% | (0.1)% | —% | (0.2)% |
| (Gain) loss on disposal of assets and other | 0.2% | 0.3% | (0.3)% | 0.9% |
| Total cost of operations | 97.1% | 109.8% | 101.8% | 135.2% |
| Operating income (loss) | 2.9% | (9.8)% | (1.8)% | (35.2)% |
| Average screen count (month end average) | 5,843 | 5,876 | 5,850 | 5,890 |

(1) The only difference between components of operating income (loss) for Holdings, as presented above, and those of CUSA is incremental general and administrative expense recognized by Holdings. The following table sets forth, for the periods indicated, the amounts for general and administrative expense, total cost of operations and operating income (loss) of CUSA:

| Operating data (in millions): Cost of operations | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| General and administrative expense | $44.4 | $37.9 | $131.8 | $109.7 |
| Total cost of operations | $630.9 | $476.6 | $1,885.6 | $1,139.1 |
| Operating income (loss) | $19.5 | $(41.8) | $(30.6) | $(295.3) |

(2) All costs are expressed as a percentage of total revenue, except film rentals and advertising, which are expressed as a percentage of admissions revenue, and concession supplies, which are expressed as a percentage of concession revenue.

***Three months ended September 30, 2022 (the “third quarter of 2022”) versus the three months ended September 30, 2021 (the “third quarter of 2021”).***

The COVID-19 pandemic has had an ongoing impact on the movie exhibition industry. When comparing the results for the third quarter of 2022 with the third quarter of 2021, the following should be noted:

- All of our domestic and international theatres were open during the third quarter of 2022 while certain of our domestic and international theatres were temporarily closed for portions of the third quarter of 2021.
- There was a reduced volume of films released theatrically during both periods, although to a lesser extent in the third quarter 2022.
- The North American Industry box office exceeded $1.9 billion during the third quarter of 2022, which included blockbuster films such as *Minions: The Rise of Gru, Thor: Love and Thunder, Top Gun: Maverick, Nope, Elvis* and *Bullet Train.*
- The North American Industry box office totaled approximately $1.4 billion during the third quarter of 2021 with a limited number of new releases, which included *Shang-Chi and the Legend of the Ten Rings, Black Widow, Jungle Cruise* and *Free Guy.*

*Revenue.* The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenue.

|  | U.S. Operating Segment Three Months Ended September 30, 2022 | 2021 | International Operating Segment Three Months Ended September 30, 2022 | 2021 | Constant Currency (3) 2022 | Consolidated Three Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Admissions revenue | $257.6 | $195.3 | $67.0 | $30.2 | $76.9 | $324.6 | $225.5 |
| Concession revenue | 200.8 | 142.6 | 52.8 | 21.6 | 60.9 | 253.6 | 164.2 |
| Other revenue (1) | 53.3 | 37.6 | 18.9 | 7.5 | 21.7 | 72.2 | 45.1 |
| Total revenue (1) | $511.7 | $375.5 | $138.7 | $59.3 | $159.5 | $650.4 | $434.8 |
| Attendance | 29.5 | 21.5 | 18.9 | 9.2 |  | 48.4 | 30.7 |
| Average ticket price (2) | $8.73 | $9.08 | $3.54 | $3.28 | $4.07 | $6.71 | $7.35 |
| Concession revenue per patron (2) | $6.81 | $6.63 | $2.79 | $2.35 | $3.22 | $5.24 | $5.35 |

(1) U.S. operating segment revenue includes eliminations of intercompany transactions with the international operating segment. See Note 16 to our condensed consolidated financial statements.

(2) Average ticket price is calculated as admissions revenue divided by attendance. Concession revenue per patron is calculated as concession revenue divided by attendance.

(3) Constant currency revenue amounts, which are non-GAAP measurements, were calculated using the average exchange rate for the corresponding month for 2021. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time in accordance with U.S. GAAP. Significant changes in foreign currency exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance that excludes the impact of foreign currency fluctuations.

- *U.S.* Attendance increased 37.2% to 29.5 million patrons during the third quarter of 2022 compared with 21.5 million patrons during the third quarter of 2021 due to the improved state of the COVID-19 pandemic and a more consistent cadence of new film releases with broad consumer appeal. Average ticket price decreased to $8.73 during the third quarter of 2022 compared with $9.08 during the third quarter of 2021 driven by a higher mix of matinee and weekday showtimes, fewer Private Watch Parties and the impact of National Cinema Day, partially offset by strategic pricing initiatives. Concessions revenue per patron increased 2.7% to $6.81 during the third quarter of 2022 compared with $6.63 during the third quarter of 2021 primarily driven by strategic pricing initiatives, partially offset by the impact of discounted concessions during National Cinema Day. Other revenue for the third quarter of 2022 increased 41.8% to $53.3 million compared with $37.6 million during the third quarter of 2021 primarily due to attendance growth, which drove an increase in screen advertising, transaction fees, and promotional revenue.
- *International.* Attendance increased 105.4% to 18.9 million patrons during the third quarter of 2022 compared with 9.2 million patrons during the third quarter of 2021 due to the lifting of COVID-19 related restrictions as well as a more consistent cadence of new film releases with broad consumer appeal. Average ticket price was $3.54 for the third quarter of 2022 as reported, $4.07 in constant currency, compared with $3.28 for the third quarter of 2021. The increase in average ticket price in constant currency was primarily due to inflationary and strategic pricing actions and higher premium ticket mix. Concession revenue per patron was $2.79 as reported, $3.22 in constant currency, for the third quarter of 2022 compared with $2.35 in the third quarter of 2021. The increase in concession revenue per patron in constant currency was due to inflationary and strategic pricing actions and higher purchase incidence. Other revenue for the third quarter of 2022 increased 152.0% to $18.9 million compared with $7.5 million during the third period of 2021 primarily due to the growth in attendance, which drove an increase in screen advertising, transaction fees and promotional revenue.

*Cost of Operations.* The table below, presented by reportable operating segment, summarizes our year-over-year theatre operating costs.

|  | U.S. Operating Segment Three Months Ended September 30, 2022 | 2021 | International Operating Segment Three Months Ended September 30, 2022 | 2021 | Constant Currency (1) 2022 | Consolidated Three Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Film rentals and advertising | $147.1 | $101.9 | $33.8 | $15.1 | $38.9 | $180.9 | $117.0 |
| Concession supplies | $34.8 | $23.0 | $11.5 | $5.2 | $13.2 | $46.3 | $28.2 |
| Salaries and wages | $81.9 | $58.0 | $15.1 | $9.6 | $17.3 | $97.0 | $67.6 |
| Facility lease expense | $61.9 | $58.8 | $15.3 | $10.0 | $17.3 | $77.2 | $68.8 |
| Utilities and other | $85.4 | $68.1 | $25.0 | $13.6 | $28.0 | $110.4 | $81.7 |

(1) Constant currency expense amounts, which are non-GAAP measurements, were calculated using the average exchange rate for the corresponding month for 2021. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time in accordance with U.S. GAAP. Significant changes in foreign currency exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance that excludes the impact of foreign currency fluctuations.

- *U.S.* Film rentals and advertising costs for the third quarter of 2022 were 57.1% of admissions revenue compared with 52.2% for the third quarter of 2021. The rate for the third quarter of 2022 reflected the success of new film releases as discussed above, which skewed higher on sliding film rental scales. The rate for the third quarter of 2021 reflected limited new film releases and the impact of library content. Concession supplies expense for the third quarter of 2022 was 17.3% of concession revenue compared with 16.1% of concession revenue for the third quarter of 2021. The increase in the concession supplies rate was due to inflationary and supply chain pressures on concession costs, partially offset by the impact of strategic pricing initiatives on concession sales.

Salaries and wages increased to $81.9 million for the third quarter of 2022 compared with $58.0 million for the third quarter of 2021 as a result of significantly higher attendance, expanded operating hours, wage rate increases with average hourly rates up 11% compared with the third quarter of 2021 and additional labor required for expanded food and beverage offerings. These increases were partially offset by efficiencies and streamlined operations. Facility lease expense, which is primarily fixed in nature, increased to $61.9 million for the third quarter of 2022 due to new theatres and an increase in common area maintenance costs. Utilities and other costs increased to $85.4 million for the third quarter of 2022, as many of these costs, such as janitorial costs, utilities costs, credit card fees, repairs and maintenance and security costs, are variable in nature and increased due to the expansion of operating hours, a significant increase in attendance and inflationary pressures.

- *International.* Film rentals and advertising costs for the third quarter of 2022 were 50.4% of admissions revenue compared with 50.0% for the third quarter of 2021. Concession supplies expense was 21.8% of concessions revenue for the third quarter of 2022 compared with 24.1% of concession revenue for the third quarter of 2021. The decrease in concessions supplies rate was primarily driven by the impact of strategic pricing initiatives on concession sales.

Salaries and wages increased to $15.1 million as reported for the third quarter of 2022 due to the significantly higher attendance, expanded operating hours and wage rate increases. Facility lease expense increased to $15.3 million as reported for the third quarter of 2022. The increase was due to higher percentage rent driven by higher revenue and the return of minimum rent thresholds compared with the third quarter of 2021. Utilities and other costs increased to $25.0 million as reported as many of these costs are variable in nature, such as utilities, screen advertising commissions, credit card fees, janitorial costs and repairs and maintenance, and were impacted by the significant increase in attendance in the third quarter of 2022. These expenses, as reported, were also impacted by exchange rates in each of the countries in which we operate.

*General and Administrative Expense.* General and administrative expense for Holdings increased to $45.1 million for the third quarter of 2022 compared with $38.6 million for the third quarter of 2021. General and administrative expense attributable to CUSA increased to $44.4 million for the third quarter of 2022 compared with $37.9 million for the third quarter of 2021. The increase for both Holdings and CUSA is primarily due to higher staffing levels, wages and benefits inflation, professional fees and a shift to cloud-based software.

*Depreciation and Amortization.* Depreciation and amortization expense decreased to $58.3 million for the third quarter of 2022 compared with $67.2 million for the third quarter of 2021 primarily due to the impairment of theatre assets during 2021.

*Impairment of Long-Lived and Other Assets.* We recorded asset impairment charges on assets held and used of $15.2 million for the third quarter of 2022. Long-lived asset impairment charges of approximately $4.0 million were recorded primarily due to the prolonged recovery of certain theatres from the COVID-19 pandemic. In addition, we recorded an impairment of $11.2 million for our investment in NCM, as NCMI’s stock price was significantly below the Company’s carrying value of NCM per common unit and due to the prolonged recovery of NCM's business. See Note 12 to our condensed consolidated financial statements for a discussion of impairment analyses performed and a summary of impairment recorded. We recorded asset impairment charges on assets held and used of $7.5 million for the third quarter of 2021, all of which were long-lived asset impairment charges, primarily due to the limited recovery of certain theatres as a result of the impact of the COVID pandemic.

*Loss on Disposal of Assets and Other.* A loss on disposal of assets and other of $1.2 million was recorded during the third quarter of 2022 compared with a loss of $1.1 million during the third quarter of 2021. Activity for the third quarter of 2022 was primarily related to the write-off of assets for a closed theatre and the write-off of assets at certain remodeled theatres. Activity for the third quarter of 2021 was primarily related to the removal and disposal of assets at closed theatres.

*Interest Expense.* Interest expense for Holdings, which includes amortization of debt issuance costs and amortization of accumulated losses for swap amendments, increased to $38.4 million during the third quarter of 2022 compared with $38.0 million for the third quarter of 2021. Interest expense attributable to CUSA, which includes amortization of debt issuance costs and amortization of accumulated losses for swap amendments, increased to $32.4 million during the third quarter of 2022 compared with $31.9 million for the third quarter of 2021. The increase for both Holdings and CUSA was primarily due to the increase in variable interest rates. See further discussion at *Financing Activities* below.

*Equity in Income (Loss) of Affiliates.* Equity in income of affiliates of $0.2 million was recorded during the third quarter of 2022 compared with a loss of $(7.2) million during the third quarter of 2021. The improvement in equity in income (loss) of affiliates is due to the ongoing recovery of our equity investees’ performance as the industry continues to recover. See Notes 8 and 9 to our condensed consolidated financial statements for information about our equity investments.

*Income Taxes - Holdings.* An income tax expense of $3.4 million was recorded for the third quarter of 2022 compared with an income tax benefit of $(8.9) million for the third quarter of 2021. The effective tax rate was approximately (16.6)% for the third quarter of 2022 compared with 10.3% for the third quarter of 2021. The effective tax rate for the third quarter of 2022 was impacted by valuation allowances related to certain deferred tax assets for which the ultimate realization is uncertain. For the third quarter of 2022, we utilized the annual effective tax rate (“AETR”) method to calculate our interim tax provision. Income tax provisions for interim (quarterly) periods are generally based on estimated annual income tax rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result, the interim rate may vary significantly from the normalized annual rate.

*Income Taxes - CUSA.* An income tax benefit of $(0.4) million was recorded for the third quarter of 2022 compared with an income tax benefit of $(7.4) million for the third quarter of 2021. The effective tax rate was approximately 2.7% for the third quarter of 2022 compared with 9.3% for the third quarter of 2021. The effective tax rate for the third quarter of 2022 was impacted by valuation allowances related to certain deferred tax assets for which the ultimate realization is uncertain. For the third quarter of 2022, we utilized the annual effective tax rate (“AETR”) method to calculate our interim tax provision. . Income tax provisions for interim (quarterly) periods are generally based on estimated annual income tax rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result, the interim rate may vary significantly from the normalized annual rate.

### Nine months ended September 30, 2022 (the “2022 period”) versus the nine months ended September 30, 2021 (the “2021 period”)

The COVID-19 pandemic has had an ongoing impact on the movie exhibition industry. When comparing the results for the 2022 period with the 2021 period, the following should be noted:

- All of our domestic and international theatres were open during the 2022 period while certain of our domestic and international theatres were temporarily closed for portions of the 2021 period.
- There was a reduced volume of films released theatrically during both periods, although to a lesser extent during the 2022 period.
- The North American Industry box office exceeded $5.6 billion during the 2022 period, which included blockbuster films such as *Top Gun: Maverick, Doctor Strange in the Multiverse of Madness, Jurassic World: Dominion, The Batman, Minions: The Rise of Gru, Thor: Love and Thunder, Sonic the Hedgehog 2, Elvis, Uncharted* and *Nope.*
- The North American Industry box office totaled approximately $2.4 billion during the 2021 period with library content and a limited number of new releases, which included *Shang-Chi and the Legend of the Ten Rings, Black Widow, F9 The Fast Saga, A Quiet Place Part II, Jungle Cruise, Free Guy, Godzilla vs. Kong, Cruella, Space Jam: A New Legacy* and *The Conjuring: The Devil Made Me Do It.*

*Revenue.* The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenue.

|  | U.S. Operating Segment Nine Months Ended September 30, 2022 | 2021 | International Operating Segment Nine Months Ended September 30, 2022 | 2021 | Constant Currency (3) 2022 | Consolidated Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Admissions revenue | $759.1 | $384.4 | $183.2 | $50.7 | $199.5 | $942.3 | $435.1 |
| Concession revenue | 576.5 | 275.0 | 136.1 | 38.5 | 149.7 | 712.6 | 313.5 |
| Other revenue (1) | 148.9 | 82.5 | 51.2 | 12.7 | 55.3 | 200.1 | 95.2 |
| Total revenue (1) | $1,484.5 | $741.9 | $370.5 | $101.9 | $404.5 | $1,855.0 | $843.8 |
| Attendance | 84.2 | 41.8 | 49.3 | 15.7 |  | 133.5 | 57.5 |
| Average ticket price (2) | $9.02 | $9.20 | $3.72 | $3.23 | $4.05 | $7.06 | $7.57 |
| Concession revenue per patron (2) | $6.85 | $6.58 | $2.76 | $2.45 | $3.04 | $5.34 | $5.45 |

(1) U.S. operating segment revenue includes eliminations of intercompany transactions with the international operating segment. See Note 16 to our condensed consolidated financial statements.

(2) Average ticket price is calculated as admissions revenue divided by attendance. Concession revenue per patron is calculated as concession revenue divided by attendance.

(3) Constant currency revenue amounts, which are non-GAAP measurements, were calculated using the average exchange rate for the corresponding month for 2021. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time in accordance with U.S. GAAP. Significant changes in foreign currency exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance that excludes the impact of foreign currency fluctuations.

- *U.S.* Attendance increased 101.4% to 84.2 million patrons during the 2022 period compared with 41.8 million patrons during the 2021 period due to the improved state of the COVID-19 pandemic and a more consistent cadence of new film releases with broad consumer appeal. Average ticket price decreased to $9.02 during the 2022 period compared with $9.20 during the 2021 period driven by a higher mix of matinee and weekday showtimes and fewer Private Watch Parties, partially offset by strategic pricing initiatives. Concession revenue per patron increased 4.1% to $6.85 during the 2022 period compared with $6.58 during the 2021 period primarily driven by strategic pricing initiatives. Other revenue for the 2022 period increased 80.5% to $148.9 million compared with $82.5 million during the 2021 period primarily due to attendance growth, which drove an increase in transaction fees, screen advertising and promotional revenue.
- *International.* Attendance increased 214.0% to 49.3 million patrons during the 2022 period compared with 15.7 million patrons during the 2021 period due to the lifting of COVID-19 related restrictions as well as a more consistent cadence of new film releases with broad consumer appeal. Average ticket price was $3.72 as reported, $4.05 in constant currency, compared with the 2021 period of $3.23. The increase in average ticket price in constant currency was primarily the result of strategic pricing actions and higher premium ticket mix. Concession revenue per patron was $2.76 as reported, $3.04 in constant currency, for the 2022 period compared with $2.45 for the 2021 period. The increase in concession revenue per patron in constant currency was due to strategic pricing actions and higher purchase incidence. Other revenue for the 2022 period increased 303.1% to $51.2 million compared with $12.7 million during the 2021 period primarily due to higher attendance, which drove an increase screen advertising, transaction fees and promotional revenue.

*Cost of Operations.* The table below, presented by reportable operating segment, summarizes our year-over-year theatre operating costs.

|  | U.S. Operating Segment Nine Months Ended September 30, 2022 | 2021 | International Operating Segment Nine Months Ended September 30, 2022 | 2021 | Constant Currency (1) 2022 | Consolidated Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Film rentals and advertising | $439.0 | $191.5 | $92.1 | $25.3 | $100.6 | $531.1 | $216.8 |
| Concession supplies | $98.9 | $44.6 | $29.9 | $9.6 | $32.9 | $128.8 | $54.2 |
| Salaries and wages | $233.4 | $126.4 | $43.6 | $22.8 | $47.5 | $277.0 | $149.2 |
| Facility lease expense | $187.6 | $177.7 | $43.6 | $23.1 | $46.8 | $231.2 | $200.8 |
| Utilities and other | $234.8 | $161.0 | $69.0 | $31.0 | $74.0 | $303.8 | $192.0 |

(1) Constant currency expense amounts, which are non-GAAP measurements, were calculated using the average exchange rate for the corresponding month for 2021. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in effect at different points in time in accordance with U.S. GAAP. Significant changes in foreign currency exchange rates from one period to the next can result in meaningful variations in reported results. We are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance that excludes the impact of foreign currency fluctuations.

- *U.S.* Film rentals and advertising costs for the 2022 period were 57.8% of admissions revenue compared with 49.8% for the 2021 period. The rate for the 2022 period reflected the success of new film releases as discussed above. The rate for the 2021 period reflected the release of limited new films which skewed lower on our negotiated film rental scales and the impact of library content. Concession supplies expense for the 2022 period was 17.2% of concession revenue compared with 16.2% of concession revenue for the 2021 period. The increase in the concession supplies rate was due to inflationary and supply chain pressures on certain concession categories, partially offset by the impact of strategic pricing initiatives on concession sales.

Salaries and wages increased to $233.4 million for the 2022 period compared with $126.4 million for the 2021 period as a result of significantly higher attendance, expanded operating hours and wage rate increases with average hourly rates up approximately 12% over the 2021 period, partially offset by efficiencies and streamlined operations. Facility lease expense increased to $187.6 million primarily due to new theatres and an increase in common area maintenance costs. Utilities and other costs increased to $234.8 million, as many of these costs, such as janitorial costs, utilities costs, credit card fees, repairs and maintenance and security costs, are variable in nature and were impacted by the expansion of operating hours, a significant increase in attendance and inflationary pressures.

- *International.* Film rentals and advertising costs for the 2022 period were 50.3% of admissions revenue compared with 49.9% for the 2021 period. The increase in the film rentals and advertising rate was a result of the increase in new film content and the expiration of VPFs received in certain countries. Concession supplies expense was 22.0% of concessions revenue compared with 24.9% of concession revenue for the 2021 period. The decrease in concessions supplies rate was primarily driven by the impact of strategic pricing initiatives on concession sales.

Salaries and wages increased to $43.6 million as reported for the 2022 period due to the significantly higher attendance, expanded operating hours and wage rate increases. Facility lease expense increased to $43.6 million as reported for the 2022 period. The increase was due to higher percentage rent driven by higher revenue and the return of minimum rent thresholds compared with the 2021 period. Utilities and other costs increased to $69.0 million as reported, as many of these costs are variable in nature, such as utilities, credit card fees, screen advertising commissions, janitorial costs and repairs and maintenance, and were impacted by the significant increase in attendance. These expenses, as reported, were also impacted by exchange rate fluctuations in each of the countries in which we operate.

*General and Administrative Expense.* General and administrative expense for Holdings increased to $134.0 million for the 2022 period compared with $111.8 million for the 2021 period. General and administrative expense attributable to CUSA increased to $131.8 million for the 2022 period compared with $109.7 million for the 2021 period. The increase is primarily due to higher staffing levels, incentive-based compensation, professional fees and a shift to cloud-based software.

*Depreciation and Amortization.* Depreciation and amortization expense decreased to $181.0 million for the 2022 period compared with $202.3 million for the 2021 period primarily due to the impairment of theatre assets during 2021.

*Impairment of Long-Lived and Other Assets.* We recorded asset impairment charges on assets held and used of $107.5 million for the 2022 period. Long-lived asset impairment charges of approximately $107.5 million were recorded primarily due to the prolonged recovery of certain theatres from the COVID pandemic. In addition, we recorded an impairment of $98.0 million for our investment in NCM as NCMI’s stock price was significantly below the Company’s carrying value of NCM per common unit and due to the prolonged recovery of NCM's business. We recorded asset impairment charges on assets held and used of $7.5 million for the 2021 period. See Note 12 to our condensed consolidated financial statements for a discussion of impairment analyses performed and a summary of impairment recorded.

*(Gain) Loss on Disposal of Assets and Other.* A gain on disposal of assets and other of $(6.4) million was recorded for the 2022 period compared with a loss of $7.9 million for the 2021 period. Activity for the 2022 period was primarily related to the sale of excess land parcels. Activity for the 2021 period was primarily related to the write-off of certain digital projectors received from DCIP in a non-cash distribution that were replaced with laser projectors, partially offset by gains on the sale of excess land parcels.

*Interest Expense.* Interest expense for Holdings, which includes amortization of debt issuance costs and amortization of accumulated losses for swap amendments, increased to $114.6 million during the 2022 period compared with $111.6 million for the 2021 period. Interest expense attributable to CUSA, which includes amortization of debt issuance costs and amortization of accumulated losses for swap amendments, increased to $96.5 million during the third quarter of 2022 compared with $93.5 million for the third quarter of 2021. The increase for both Holdings and CUSA was primarily due to the issuance of the 5.875% Senior Notes and 5.25% Senior Notes to refinance the 5.125% Senior Notes and 4.875% Senior Notes during 2021. See further discussion at *Financing Activities* below.

*Loss on Extinguishment of Debt.* We recorded a loss on extinguishment of debt of $6.5 million during the 2021 period related to the early retirement of our 5.125% Senior Notes and 4.875% Senior Notes, including the write-off of unamortized debt issuance costs and legal and other fees paid.

*Equity in Loss of Affiliates.* Equity in loss of affiliates of $7.5 million was recorded during the 2022 period compared with $22.1 million during the 2021 period. The decrease in equity in loss of affiliates is due to the ongoing recovery of our equity investees’ performance as the industry continues to recover. See Notes 8 and 9 to our condensed consolidated financial statements for information about our equity investments.

*Income Taxes - Holdings.* An income tax expense of $6.3 million was recorded for the 2022 period compared with an income tax benefit of $(15.6) million for the 2021 period. The effective tax rate was approximately (3.9)% for the 2022 period compared with 3.5% for the 2021 period. The effective tax rate for the 2022 period was impacted by valuation allowances related to certain deferred tax assets for which the ultimate realization is uncertain. For the 2022 and 2021 periods, we utilized the annual effective tax rate method to calculate our interim tax provision. Income tax provisions for interim (quarterly) periods are based on estimated annual income tax rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result, the interim rate may vary significantly from the normalized annual rate.

*Income Taxes - CUSA.* An income tax benefit of $(3.3) million was recorded for the 2022 period compared with an income tax benefit of $(11.3) million for the 2021 period. The effective tax rate was approximately 2.3% for the 2022 period compared with 2.7% for the 2021 period. The effective tax rate for the 2022 period was impacted by valuation allowances related to certain deferred tax assets for which the ultimate realization is uncertain. For the 2022 and 2021 periods, we utilized the annual effective tax rate method to calculate our interim tax provision. Income tax provisions for interim (quarterly) periods are based on estimated annual income tax rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result, the interim rate may vary significantly from the normalized annual rate.

### Liquidity and Capital Resources

#### Operating Activities

We primarily collect our revenue in cash, mainly through box office receipts and the sale of concessions. Our revenue is generally received in cash prior to the payment of related expenses; therefore, we have an operating “float” and historically have not required traditional working capital financing. We temporarily closed all of our theatres during March 2020 and funded operating expenses with cash on hand and new financing discussed below under *Financing Activities* while theatres were closed and as we reopened our theatres. During the latter part of 2021, as we began to show a steady stream of new film content and our theatres were returning to more consistent operating hours, we began to generate positive cash flows from operations and transition back to our historical working capital “float” position. However, our working capital position will continue to fluctuate based on seasonality, the timing and volume of new film content, the timing of interest payments on our long-term debt as well as timing of payment of other operating expenses that are paid annually or semi-annually, such as property and other taxes and incentive bonuses. We believe our existing cash and expected cash flows from operations will be sufficient to meet our working capital, capital expenditures, and expected cash requirements from known contractual obligations for the next twelve months and beyond.

Cash provided by operating activities was $27.7 million for Holdings and $47.0 million for CUSA for the nine months ended September 30, 2022, compared with cash used for operating activities of $(42.2) million for Holdings and $(31.7) million for CUSA for the nine months ended September 30, 2021. The increase in cash provided by (used for) operating activities was primarily a result of the timing and level of revenue earned during each period and the timing of payments to vendors for expenses incurred during each period.

As discussed in Note 4 to our condensed consolidated financial statements, rent deferrals and other lease-related payments were negotiated in 2020 and early 2021 with some of our landlords. As of September 30, 2022, approximately $5.3 million of deferred lease payments were outstanding, the majority of which will be repaid during the remainder of 2022.

#### Investing Activities

Investing activities have been principally related to the development, remodel and acquisition of theatres. New theatre openings, remodels and acquisitions historically have been financed with internally generated cash and by debt financing, including borrowings under our senior secured credit facility. Cash used for investing activities was $(53.3) million for the nine months ended September 30, 2022 compared with $(55.0) million for the nine months ended September 30, 2021.

Capital expenditures, disaggregated by new and existing theatres, during the nine months ended September 30, 2022 and 2021 were as follows (in millions):

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| New theatres | $24.8 | $24.1 |
| Existing theatres | 40.5 | 33.1 |
| Total capital expenditures | $65.3 | $57.2 |

We operated 517 theatres with 5,835 screens worldwide as of September 30, 2022. Theatres and screens built and closed during the nine months ended September 30, 2022 are shown below:

| U.S (42 states) | January 1, 2022 | Built | Closed | September 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Theatres | 321 | 1 | (4) | 318 |
| Screens | 4,408 | 14 | (30) | 4,392 |
| International (15 countries) |  |  |  |  |
| Theatres | 201 | 1 | (3) | 199 |
| Screens | 1,460 | 19 | (36) | 1,443 |
| Worldwide |  |  |  |  |
| Theatres | 522 | 2 | (7) | 517 |
| Screens | 5,868 | 33 | (66) | 5,835 |

45

As of September 30, 2022, the following signed commitments were outstanding:

| Remainder of 2022 | Theatres | Screens | Estimated Remaining Investment (1) |
| --- | ---: | ---: | ---: |
| U.S. | 1 | 14 | $5.1 |
| International | 1 | 5 | 0.6 |
| Total | 2 | 19 | $5.7 |
| Subsequent to 2022 |  |  |  |
| U.S. | 3 | 34 | $23.7 |
| International | 4 | 21 | 8.5 |
| Total | 7 | 55 | $32.2 |
| Total commitments at September 30, 2022 | 9 | 74 | $37.9 |

(1) Approximately $5.7 million is to be paid during the remainder of 2022 and $10.5 million, $18.7 million and $3.0 million is expected to be paid during 2023, 2024 and 2025, respectively. The timing of payments is subject to change in the event of construction or other delays.

Actual expenditures for continued theatre development, remodels and acquisitions are subject to change based upon the availability of attractive opportunities. During the next twelve months and the foreseeable future, capital expenditures for our continued development will be funded with cash flow from operations and, if needed, borrowings under our senior secured credit facility, proceeds from debt issuances, sale leaseback transactions and/or sales of excess real estate.

#### Financing Activities

Cash used for financing activities for Holdings was $(32.6) million for the nine months ended September 30, 2022 compared with cash used for financing activities of $(12.9) million for the nine months ended September 30, 2021. Cash used for financing activities for CUSA was $(32.6) million for the nine months ended September 30, 2022 compared with cash provided by financing activities of $107.1 million for the nine months ended September 30, 2021. During the nine months ended September 30, 2021, Holdings distributed $120.0 million to CUSA and CUSA issued 5.875% Senior Notes and 5.25% Senior Notes, the proceeds of which were used to redeem the 5.125% Senior Notes and the 4.875% Senior Notes as discussed further below.

At the discretion of the board of directors and subject to applicable law, Holdings may pay dividends on its common stock. The amount, if any, of the dividends to be paid in the future will depend upon available cash balances, anticipated cash needs, overall financial condition, loan agreement restrictions as discussed below, future prospects for earnings and cash flows, as well as other relevant factors. As a result of the impact of the COVID-19 pandemic, Holdings suspended its quarterly dividend to its shareholders.

We may, from time to time, seek to retire or repurchase our outstanding debt securities through cash purchases or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on the availability and prices of such debt securities, prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

See Note 7 for a summary of long-term debt outstanding as of September 30, 2022 for Holdings and CUSA.

As of September 30, 2022, $100 million was available for borrowing under the revolving line of credit.

#### Contractual Obligations

There have been no material changes in the contractual obligations previously disclosed in “Liquidity and Capital Resources” in the Holdings Annual Report on Form 10-K for the year ended December 31, 2021 filed February 25, 2022 or in the CUSA Annual Report on Form 10-K for the year ended December 31, 2021 filed March 9, 2022.

#### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

#### 4.50% Convertible Senior Notes

On August 21, 2020, Holdings issued $460 million 4.50% convertible senior notes (the “4.50% Convertible Senior Notes”). The notes will mature on August 15, 2025, unless earlier repurchased or converted. Interest on the notes will be payable on February 15 and August 15 of each year, beginning on February 15, 2021.

Holders of the 4.50% Convertible Senior Notes may convert their 4.50% Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding May 15, 2025 only under the following circumstances: (1) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (2) if we distribute to all or substantially all stockholders (i) rights options or warrants entitling them to purchase shares at a discount to the recent average trading price of our common stock (including due to a stockholder rights plan) or (ii) our assets or securities or rights, options or warrants to purchase the same with a per share value exceeding 10% of the trading price of our common stock, (3) upon the occurrence of specified corporate events as described further in the indenture. Beginning May 15, 2025, holders may convert their notes at any time prior to the close of business on the third scheduled trading day immediately preceding the maturity date, or (4) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to $18.65 per share (130% of the initial conversion price of $14.35 per share), on each applicable trading day. Upon conversion of the notes, we will pay or deliver cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

The initial conversion rate is 69.6767 shares of our common stock per one thousand dollars principal amount of the 4.50% Convertible Senior Notes. The conversion rate will be subject to adjustment upon the occurrence of certain events. If a make-whole fundamental change as defined in the indenture occurs prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with such make-whole fundamental change.

The 4.50% Convertible Notes are effectively subordinated to any of Holdings, or its subsidiaries’, existing and future secured debt to the extent of the value of the assets securing such indebtedness, including obligations under the Credit Agreement. The 4.50% Convertible Notes are structurally subordinated to all existing and future debt and other liabilities, including trade payables, including CUSA’s 8.75% Secured Notes due 2025, 5.25% Senior Notes due 2028 and 5.875% Senior Notes due 2026, or, collectively, CUSA’s senior notes (but excluding all obligations under the Credit Agreement which are guaranteed by Holdings). The 4.50% Convertible Notes rank equally in right of payment with all of our existing and future unsubordinated debt, including all obligations under the CUSA Credit Agreement, which such Credit Agreement is guaranteed by Holdings, and senior in right of payment to any future debt that is expressly subordinated in right of payment to the notes. The 4.50% Convertible Notes are not guaranteed by any of Holdings' subsidiaries.

#### Senior Secured Credit Facility

CUSA has a senior secured credit facility that includes a $700.0 million term loan and a $100.0 million revolving credit line (the “Credit Agreement”). Under the amended Credit Agreement, quarterly principal payments of $1.6 million are due on the term loan through December 31, 2024, with a final principal payment of $613.4 million due on March 29, 2025. CUSA had $100.0 million of available borrowing capacity on the revolving credit line as of September 30, 2022.

Interest on the term loan accrues at CUSA's option at: (A) the base rate equal to the greater of (1) the US “Prime Rate” as quoted in The Wall Street Journal or, if no such rate is quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin of 0.75% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin of 1.75% per annum. Interest on the revolving credit line accrues, at our option, at: (A) a base rate equal to the greater of (1) the US “Prime Rate” as quoted in The Wall Street Journal or if no such rate is quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin that ranges from 0.50% to 1.25% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin that ranges from 1.50% to 2.25% per annum. The margin of the revolving credit line is determined by the consolidated net senior secured leverage ratio as defined in the Credit Agreement.

CUSA's obligations under the Credit Agreement are guaranteed by Holdings, as well as certain of CUSA’s domestic subsidiaries, and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of CUSA’s and the guarantors’ personal property, including, without limitation, pledges of all of CUSA’s capital stock and, all of the capital stock of certain of CUSA’s domestic subsidiaries.

The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on CUSA’s ability, and in certain instances, its subsidiaries’ and Holdings' ability, to consolidate or merge or liquidate, wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay dividends or repurchase stock; and make capital expenditures and investments. If CUSA has borrowings outstanding on the revolving credit line, it is required to satisfy a consolidated net senior secured leverage ratio covenant as defined in the Credit Agreement, not to exceed 4.25 to 1. See below for discussion of recent covenant waivers.

The dividend restriction contained in the Credit Agreement prevents Holdings and certain of its subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) Holdings is not in default, and the distribution would not cause CUSA to be in default, under the Credit Agreement; and (2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made since December 18, 2012, including dividends declared by the Holdings' board of directors, is less than the sum of (a) the aggregate amount of cash and cash equivalents received by Holdings or CUSA as common equity since December 18, 2012, (b) CUSA's consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the Credit Agreement, and (c) certain other defined amounts, or collectively, the Applicable Amount. As of September 30, 2022, CUSA could have distributed up to approximately $3.0 billion to its parent company and sole stockholder, Holdings.

On April 17, 2020, in conjunction with the issuance of the 8.75% Secured Notes discussed below, CUSA obtained a waiver of the leverage covenant from the majority of revolving lenders under the Credit Agreement for the fiscal quarters ended September 30, 2020 and December 31, 2020. The waiver was subject to certain liquidity thresholds, restrictions on investments and the use of the Applicable Amount.

On August 21, 2020, in conjunction with the issuance by Holdings of the 4.50% Convertible Senior Notes discussed below, CUSA further amended the waiver of the leverage covenant through the fiscal quarter ending September 30, 2021. The amendment also i) modified the leverage covenant calculation beginning with the calculation for the trailing twelve-month period ended December 31, 2021, ii) for purposes of testing the consolidated net senior secured leverage ratio for the fiscal quarters ended on December 31, 2021, March 31, 2022 and June 30, 2022, permitted substitution of Consolidated EBITDA for the first three fiscal quarters of 2019 in lieu of Consolidated EBITDA for the corresponding fiscal quarters of 2021, (iii) modified the restrictions imposed by the covenant waiver and (iv) made such other changes to permit the issuance of the 4.50% Convertible Senior Notes discussed below. The ratio for the period ended September 30, 2022 was calculated using actual Consolidated EBITDA for the trailing twelve month period then ended. The required maximum ratio is 4.25 to 1 and CUSA's actual ratio as of September 30, 2022 was 2.2.

On June 15, 2021, in conjunction with the issuance of the 5.25% Senior Notes discussed below, the Credit Agreement was amended to, among other things, extend the maturity of the revolving credit line from November 28, 2022 to November 28, 2024.

CUSA has three interest rate swap agreements that are used to hedge a portion of the interest rate risk associated with the variable interest rates on the term loan outstanding under the Credit Agreement. See Note 7 of our condensed consolidated financial statements for discussion of the interest rate swaps.

As of September 30, 2022, there was $628.2 million outstanding under the term loan and no borrowings were outstanding under the $100.0 million revolving line of credit. The average interest rate on outstanding term loan borrowings under the Credit Agreement as of September 30, 2022 was approximately 4.0% per annum, after giving effect to the interest rate swap agreements discussed above.

#### 5.875% Senior Notes

On March 16, 2021, CUSA issued $405 million aggregate principal amount of 5.875% senior notes due 2026, at par value (the “5.875% Senior Notes”). Proceeds, after payment of fees, were used to fund a cash tender offer to purchase any and all of CUSA’s 5.125% Senior Notes (the “5.125% Senior Notes”) and to redeem any of the 5.125% Notes that remained outstanding after the tender offer. See further discussion of the tender offer below. Interest on the 5.875% Senior Notes is payable on March 15 and September 15 of each year, beginning September 15, 2021. The 5.875% Senior Notes mature on March 15, 2026. CUSA incurred debt issuance costs of approximately $6.0 million in connection with the issuance, which are recorded as a reduction of long-term debt, less current on the condensed consolidated balance sheet.

The 5.875% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of CUSA's subsidiaries that guarantee, assume or become liable with respect to any of CUSA's or a guarantor’s debt. The 5.875% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of CUSA's and its guarantor’s existing and future senior debt and senior in right of payment to all of CUSA’s and its guarantors’ existing and future senior subordinated debt. The 5.875% Senior Notes and the guarantees are effectively subordinated to all of CUSA’s and its guarantor’s existing and future secured debt to the extent of the value of the collateral securing such debt, including all borrowings under CUSA’s Credit Agreement. The 5.875% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of CUSA's subsidiaries that do not guarantee the 5.875% Senior Notes.

Prior to March 15, 2023, CUSA may redeem all or any part of the 5.875% Senior Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the 5.875% Senior Notes to the date of redemption. After March 15, 2023, CUSA, may redeem the 5.875% Senior Notes in whole or in part at redemption prices specified in the indenture. In addition, prior to March 15, 2023, CUSA, may redeem up to 40% of the aggregate principal amount of the 5.875% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture.

#### 5.25% Senior Notes

On June 15, 2021, CUSA, Inc. issued $765 million aggregate principal amount of 5.25% senior notes due 2028, at par value (the “5.25% Senior Notes”). Proceeds, after payment of fees, were used to redeem all of CUSA's 4.875% $755 million aggregate principal amount of Senior Notes due 2023 (the “4.875% Senior Notes”). Interest on the 5.25% Senior Notes is payable on January 15 and July 15 of each year, beginning January 15, 2022. The 5.25% Senior Notes mature on July 15, 2028.

The 5.25% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of CUSA’s subsidiaries that guarantee, assume or become liable with respect to any of CUSA's or a guarantor’s debt. The 5.25% Senior Notes and the guarantees will be CUSA’s and the guarantors’ senior unsecured obligations and (i) rank equally in right of payment to CUSA’s and the guarantors’ existing and future senior debt, including borrowings under CUSA's Credit Agreement (as defined below) and CUSA’s existing senior notes, (ii) rank senior in right of payment to CUSA’s and the guarantors’ future subordinated debt, (iii) are effectively subordinated to all of CUSA’s and the guarantors’ existing and future secured debt, including all obligations under the Credit Agreement and CUSA’s 8.750% senior secured notes due 2025, in each case to the extent of the value of the collateral securing such debt, (iv) are structurally subordinated to all existing and future debt and other liabilities of CUSA’s non-guarantor subsidiaries, and (v) are structurally senior to the 4.50% convertible senior notes due 2025 issued by Holdings.

Prior to July 15, 2024, CUSA may redeem all or any part of the 5.25% Senior Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the 5.25% Senior Notes to the date of redemption. On or after July 15, 2024, CUSA may redeem the 5.25% Senior Notes in whole or in part at redemption prices specified in the indenture. In addition, prior to July 15, 2024, CUSA may redeem up to 40% of the aggregate principal amount of the 5.25% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture, so long as at least 60% of the principal amount of the 5.25% Senior Notes remains outstanding immediately after each such redemption.

#### 8.75% Secured Notes

On April 20, 2020, CUSA issued $250 million 8.75% senior secured notes (the “8.75% Secured Notes”). The 8.75% Secured Notes will mature on May 1, 2025. Interest on the 8.75% Secured Notes is payable on May 1 and November 1 of each year. CUSA may redeem the 8.75% Secured Notes in whole or in part at redemption prices specified in the indenture.

The 8.75% Secured Notes are fully and unconditionally guaranteed on a joint and several senior basis by certain of CUSA's subsidiaries that guarantee, assume or in any other manner become liable with respect to any of CUSA's or its guarantors’ other debt. If CUSA cannot make payments on the 8.75% Secured Notes when due, CUSA's guarantors must make them instead. Under certain circumstances, the guarantees may be released without action by, or the consent of, the holders of the 8.75% Secured Notes.

#### Borrowings of International Subsidiaries

As of September 30, 2022, certain of the Company’s international subsidiaries have an aggregate borrowing of $21.9 million outstanding under various local bank loans. A subsidiary of CUSA has deposited cash into a collateral account to support the issuance of letters of credit to the lenders for certain of these international bank loans. The total amount deposited as of September 30, 2022 was $22.9 million and is considered restricted cash.

#### Covenant Compliance

See discussion above at *Senior Secured Credit Facility* for discussion of dividend restriction, negative covenants and leverage ratio covenant under the Credit Agreement.

The indentures governing the 5.875% Senior Notes, the 5.25% Senior Notes and the 8.75% Secured Notes ("the indentures") contain covenants that limit, among other things, the ability of CUSA and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. As of September 30, 2022, CUSA could have distributed up to approximately $3.1 billion to its parent company and sole stockholder, Holdings, under the terms of the indentures, subject to its available cash and other borrowing restrictions outlined in the indentures. Upon a change of control, as defined in the indentures, CUSA would be required to make an offer to repurchase the 5.875% Senior Notes, the 5.25% Senior Notes and the 8.75% Secured Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indentures allow CUSA to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of September 30, 2022 was 3.2.

As of September 30, 2022, each of Holdings and CUSA believes it was in full compliance with all agreements, including all related covenants, governing our outstanding debt.

## Market risk

As filed, 3,085 characters.

Holdings and CUSA have exposure to financial market risks, including changes in interest rates, foreign currency exchange rates and other relevant market prices.

#### Interest Rate Risk

The Company currently has variable rate debt. An increase or decrease in interest rates would affect its interest expense related to this variable rate debt. The Company has three interest rate swap agreements that are used to hedge a portion of the interest rate risk associated with our term loan, covering $450.0 million of the $628.2 million outstanding at September 30, 2022. At September 30, 2022, we had an aggregate of $200.1 million of variable rate debt outstanding, and a 100 basis point increase in market interest rates would increase our annual interest expense by $2.0 million.

The tables below provide information about Holdings' fixed rate and variable rate long-term debt agreements as of September 30, 2022, which includes fixed rate and variable rate long-term debt of CUSA which is guaranteed by Holdings.

#### Holdings Debt

*(in millions)*

|  | Expected Maturity for the Twelve Months Ending September 30, 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | Fair Value | Average Interest Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fixed rate | $— | $— | $1,160.0 | $405.0 | $— | $765.0 | $2,330.0 | $2,135.8 | 5.3% |
| Variable rate | 21.9 | 8.2 | 166.1 | 1.1 | 1.1 | 1.7 | 200.1 | 190.4 | 5.1% |
| Total debt (1) | $21.9 | $8.2 | $1,326.1 | $406.1 | $1.1 | $766.7 | $2,530.1 | $2,326.2 |  |

(1) Amounts are presented before adjusting for debt issuance costs.

#### CUSA Debt

*(in millions)*

|  | Expected Maturity for the Twelve Months Ending September 30, 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | Fair Value | Average Interest Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fixed rate | $— | $— | $700.0 | $405.0 | $— | $765.0 | $1,870.0 | $1,608.3 | 5.5% |
| Variable rate | 21.9 | 8.2 | 166.1 | 1.1 | 1.1 | 1.7 | 200.1 | 190.4 | 5.1% |
| Total debt (1) | $21.9 | $8.2 | $866.1 | $406.1 | $1.1 | $766.7 | $2,070.1 | $1,798.7 |  |

(1) Amounts are presented before adjusting for debt issuance costs.

#### Interest Rate Swap Agreements

All of the interest rate swap agreements qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on each of Holdings' and CUSA's condensed consolidated balance sheet as an asset or liability with the related gains or losses reported as a component of accumulated other comprehensive loss. See Note 7 to the condensed consolidated financial statements for further discussion of the interest rate swap agreements.

#### Foreign Currency Exchange Rate Risk

There have been no material changes in foreign currency exchange rate risk previously disclosed in “Quantitative and Qualitative Disclosures About Market Risk” in Holdings' Annual Report on Form 10-K for the year ended December 31, 2021 filed February 25, 2022 or CUSA's Annual Report on Form 10-K for the year ended December 31, 2021 filed March 9, 2022.

## Controls and procedures

As filed, 1,723 characters.

#### Evaluation of the Effectiveness of Disclosure Controls and Procedures

As of September 30, 2022, each of Holdings and CUSA carried out an evaluation required by the Exchange Act, under the supervision and with the participation of their respective principal executive officer and principal financial officer, of the effectiveness of the design and operation of their respective disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based on this evaluation, the respective principal executive officer and principal financial officer of Holdings and CUSA concluded that, as of September 30, 2022, their respective disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by each of them in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to their respective management, including the principal executive officer and principal financial officer of Holdings and CUSA, as appropriate to allow timely decisions regarding required disclosures.

#### Changes in Internal Control Over Financial Reporting

There have been no changes in the internal control over financial reporting for Holdings or CUSA identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred during the quarter ended September 30, 2022 that materially affect the are reasonably likely to materially affect, our internal control over financial reporting for Holdings or CUSA.

## Risk factors

As filed, 229 characters.

See discussion in “Risk Factors” in Holdings' Annual Report on Form 10-K for the year ended December 31, 2021 filed February 25, 2022 and CUSA's Annual Report on Form 10-K for the year ended December 31, 2021 filed March 9, 2022.

Filed Nov 4, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-022048. Last ingested by Listed: Nov 3, 2026, 08:34 ET. No prices; not investment advice.