# Cinemark Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Cinemark Holdings, Inc.](/companies/cnk.md) (CIK 1385280)
- Form: 10-Q
- Filed: 2023-05-05
- Accepted by EDGAR: May 5, 2023, 06:46 ET
- Period: 2023-03-31
- Accession: 0000950170-23-018072
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1385280/000095017023018072/cnk-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1385280/000095017023018072/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $610.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $36.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | −$3.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $3.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 118,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $26.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |

## Management's discussion and analysis

As filed, 45,661 characters.

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes and schedules included elsewhere in this report. 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, and Paraguay. The Company closed its one theatre in Curacao in January 2023 and our theatres in Ecuador are currently held for sale. See Note 6 to the condensed consolidated financial statements for a discussion of the Ecuador theatre assets held for sale. As of March 31, 2023, we managed our business under two reportable operating segments – U.S. markets and international markets. See Note 16 to the condensed consolidated financial statements.

The impact of COVID-19 had an unprecedented impact on the theatrical exhibition industry. While the industry has made significant progress in its recovery from the pandemic, its ongoing recovery will be contingent upon several key factors, including the volume of new film content available, the box office performance of new film content released, the duration of the exclusive theatrical release window, and evolving consumer behavior with competition from other forms of in-and-out-of-home entertainment.

#### 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. 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 three months ended March 31, 2023 included the carryover of *Avatar: The Way of Water* and *Puss in Boots: The Last Wish,* as well as new releases including *M3GAN, Ant-Man and the Wasp: Quantumania, Creed III and John Wick 4.* Films currently scheduled for release during the remaining nine months of 2023 include *The Super Mario Bros. Movie, Guardians of the Galaxy Vol. 3, Fast X, The Little Mermaid, Spider-man: Across the Spider-verse, Elemental, The Flash, Indiana Jones and the Dial of Destiny, Mission Impossible: Dead Reckoning Part One, The Marvels, Barbie, Oppenheimer, Dune Part Two, Hunger Games: The Ballad of Songbirds and Snakes,* and *Aquaman and the Lost Kingdom*, among other films.

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. Advertising costs, which are expensed as incurred, are primarily related to expanding our customer base, increasing the frequency of visits and growing loyalty. 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 also 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 each 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, including minimum hour requirements. 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 projection and sound equipment maintenance expenses.

General and administrative expenses to support the overall management of the Company are primarily fixed in nature with certain variable expenses. Fixed expenses include salaries, wages and benefits costs for our corporate office personnel, facility expenses for our corporate and other offices, software license and 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.

#### Recent Developments

*NCM Bankruptcy Proceeding* - On April 11, 2023 NCM filed a petition for reorganization under Chapter 11 of the United States Bankruptcy code. NCMI expects to continue to manage NCM, the “debtor in possession”, under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In general, as debtor in possession under the Bankruptcy Code, NCM is authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. See *Part II - Other Information - Item 1A. Risk Factors.*

*Partial Redemption 8.75% Secured Notes* - On May 1, 2023 the Company redeemed $100 million in principal amount of its 8.75% Secured Notes plus accrued interest thereon for $106.6 million in cash. Following the redemption, $150 millon in aggregate principal amount of the 8.75% Secured Notes remains outstanding. See *Liquidity and Capital Resources - 8.75% Secured Notes.*

### Results of Operations

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

| Operating data (in millions): Revenue | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Admissions | $311.0 | $235.8 |
| Concession | 235.8 | 173.0 |
| Other | 63.9 | 51.7 |
| Total revenue | $610.7 | $460.5 |
| Cost of operations |  |  |
| Film rentals and advertising | 166.7 | 127.6 |
| Concession supplies | 43.6 | 30.0 |
| Salaries and wages | 86.2 | 79.8 |
| Facility lease expense | 79.5 | 73.7 |
| Utilities and other | 103.8 | 86.9 |
| General and administrative expenses (1) | 46.5 | 40.7 |
| Depreciation and amortization | 54.9 | 61.7 |
| Impairment of other assets | 0.7 | — |
| (Gain) loss on disposal of assets and other | 0.3 | (6.9) |
| Total cost of operations (1) | 582.2 | 493.5 |
| Operating income (loss) (1) | $28.5 | $(33.0) |
| **Operating data as a percentage of total revenue:** |  |  |
| Revenue |  |  |
| Admissions | 50.9% | 51.2% |
| Concession | 38.6% | 37.6% |
| Other | 10.5% | 11.2% |
| Total revenue | 100.0% | 100.0% |
| Cost of operations (2) |  |  |
| Film rentals and advertising | 53.6% | 54.1% |
| Concession supplies | 18.5% | 17.3% |
| Salaries and wages | 14.1% | 17.3% |
| Facility lease expense | 13.0% | 16.0% |
| Utilities and other | 17.0% | 18.9% |
| General and administrative expenses | 7.6% | 8.8% |
| Depreciation and amortization | 9.0% | 13.4% |
| Impairment of other assets | 0.1% | —% |
| (Gain) loss on disposal of assets and other | —% | (1.5)% |
| Total cost of operations | 95.3% | 107.2% |
| Operating income (loss) | 4.7% | (7.2)% |
| Average screen count (3) | 5,837 | 5,859 |

(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 loss of CUSA:

| Operating data (in millions): Cost of operations | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| General and administrative expenses | $45.6 | $39.9 |
| Total cost of operations | $581.3 | $492.7 |
| Operating income (loss) | $29.4 | $(32.2) |

(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.

(3) Average screen count is calculated based on the average of month end screen counts.

### Three months ended March 31, 2023 (the “2023 period”) versus the three months ended March 31, 2022 (the “2022 period”)

*2023 Period -* The North American Industry box office generated approximately $1.8 billion during the 2023 period, which included the carryover success of *Avatar: The Way of Water* and *Puss in Boots: The Last Wish* as well as new releases including M3GAN, *Ant-Man and the Wasp: Quantumania, Creed III and John Wick 4.*

*2022 Period -* The North American Industry box office generated approximately $1.3 billion during the 2022 period, which included blockbuster films such as *The Batman* and *Uncharted*, as well as the sustained performance of the 2021 release of *Spider-Man: No Way Home.*

*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 March 31, 2023 | 2022 | International Operating Segment Three Months Ended March 31, 2023 | 2022 | Constant Currency (3) 2023 | Consolidated Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Admissions revenue | $244.7 | $191.8 | $66.3 | $44.0 | $78.6 | $311.0 | $235.8 |
| Concession revenue | 186.8 | 141.1 | 49.0 | 31.9 | 58.6 | 235.8 | 173.0 |
| Other revenue (1) | 47.6 | 39.1 | 16.3 | 12.6 | 19.7 | 63.9 | 51.7 |
| Total revenue (1) | $479.1 | $372.0 | $131.6 | $88.5 | $156.9 | $610.7 | $460.5 |
| Attendance | 25.2 | 20.7 | 17.7 | 12.4 |  | 42.9 | 33.1 |
| Average ticket price (2) | $9.71 | $9.27 | $3.75 | $3.55 | $4.44 | $7.25 | $7.12 |
| Concession revenue per patron (2) | $7.41 | $6.82 | $2.77 | $2.57 | $3.31 | $5.50 | $5.23 |

(1) U.S. operating segment revenue includes eliminations of intercompany transactions with the international operating segment. See Note 16 to the 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 2022. 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 21.7% to 25.2 million patrons during the 2023 period compared with 20.7 million patrons during the 2022 period due to a more consistent cadence of new film releases with broad consumer appeal. Average ticket price increased 4.7% to $9.71 during the 2023 period compared with $9.27 during the 2022 period driven by strategic pricing initiatives and higher premium format attendance mix. Concession revenue per patron increased 8.7% to $7.41 during the 2023 period compared with $6.82 during the 2022 period primarily driven by strategic pricing initiatives. Other revenue for the 2023 period increased 21.7% to $47.6 million compared with $39.1 million during the 2022 period primarily due to attendance growth, which drove an increase in transaction fees, promotional revenue and screen advertising.
- *International.* Attendance increased 42.7% to 17.7 million patrons during the 2023 period compared with 12.4 million patrons during the 2022 period due to a more consistent cadence of new film releases with broad consumer appeal. Average ticket price was $3.75 as reported, $4.44 in constant currency, compared with the 2022 period of $3.55. The increase in average ticket price in constant currency was primarily due to inflationary pricing actions. Concession revenue per patron was $2.77 as reported, $3.31 in constant currency, for the 2023 period compared with $2.57 for the 2022 period. The increase in concession revenue per patron in constant currency was due to inflationary pricing actions. Other revenue for the 2023 period increased 29.4% to $16.3 million compared with $12.6 million during the 2022 period primarily due to higher attendance, which drove an increase in membership revenue, screen advertising, transaction fees and promotional revenue.

*Cost of Operations.* The table below, presented by reportable operating segment, summarizes certain of our theatre operating costs for the periods presented.

|  | U.S. Operating Segment Three Months Ended March 31, 2023 | 2022 | International Operating Segment Three Months Ended March 31, 2023 | 2022 | Constant Currency (1) 2023 | Consolidated Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Film rentals and advertising | $133.5 | $106.2 | $33.2 | $21.4 | $39.8 | $166.7 | $127.6 |
| Concession supplies | $32.9 | $22.9 | $10.7 | $7.1 | $12.9 | $43.6 | $30.0 |
| Salaries and wages | $71.5 | $67.1 | $14.7 | $12.7 | $17.6 | $86.2 | $79.8 |
| Facility lease expense | $62.0 | $62.5 | $17.5 | $11.2 | $19.9 | $79.5 | $73.7 |
| Utilities and other | $80.5 | $68.1 | $23.3 | $18.8 | $27.6 | $103.8 | $86.9 |

(1) Constant currency expense amounts, which are non-GAAP measurements, were calculated using the average exchange rate for the corresponding month for 2022. 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 2023 period were 54.6% of admissions revenue compared with 55.4% for the 2022 period due to a decrease in promotion and advertising costs, offset by the higher volume and box office success of new film content released. Concession supplies expense for the 2023 period was 17.6% of concession revenue compared with 16.2% of concession revenue for the 2022 period. The increase in the concession supplies rate for the 2023 period was due to inflationary pressures on certain concession categories, partially offset by the impact of strategic pricing initiatives on concession revenue.

Salaries and wages increased to $71.5 million for the 2023 period compared with $67.1 million for the 2022 period as a result of higher attendance, expanded operating hours and wage rate increases. Facility lease expense, which is primarily fixed in nature, was relatively flat compared to the 2022 period, decreasing 0.8% to $62.0 million. Utilities and other costs increased to $80.5 million, as many of these costs, such as utilities costs, credit card transaction fees, repairs and maintenance and security costs, are variable in nature and were impacted by the increase in attendance and inflationary pressures.

- *International.* Film rentals and advertising costs for the 2023 period were 50.1% of admissions revenue compared with 48.6% for the 2022 period primarily due to the higher volume and box office success of new film content released. Concession supplies expense was 21.8% of concessions revenue for the 2023 period compared with 22.3% of concession revenue for the 2022 period. The decrease in the concession supplies rate was primarily driven by the impact of strategic pricing initiatives on concession revenue.

Salaries and wages increased to $14.7 million as reported for the 2023 period due to wage rate increases, higher attendance, and expanded operating hours. Facility lease expense increased to $17.5 million as reported for the 2023 period due to higher percentage rent driven by higher revenue and the return of certain minimum rent thresholds compared with the 2022 period. Utilities and other costs increased to $23.3 million as reported, as many of these costs are variable in nature, such as credit card and other transaction fees, screen advertising commissions, janitorial costs and repairs and maintenance, and were impacted by inflation and the significant increase in attendance for the 2023 period. 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 $46.5 million for the 2023 period compared with $40.7 million for the 2022 period. General and administrative expense attributable to CUSA increased to $45.6 million for the 2023 period compared with $39.9 million for the 2022 period. The increase for both Holdings and CUSA is primarily due to higher staffing levels, wages inflation, an increase in share-based compensation expense and a continued shift to cloud-based software.

*Depreciation and Amortization.* Depreciation and amortization expense decreased to $54.9 million for the 2023 period compared with $61.7 million for the 2022 period primarily due to the impairment of theatre assets during 2022 and the impact of foreign currency exchange rates.

*Impairment of Other Assets.* We recorded an impairment of our investment in NCMI of $0.7 for the 2023 period due to the prolonged recovery of NCM's business from the COVID-19 pandemic. For further discussion, see Note 8 to the condensed consolidated financial statements. There were no asset impairment charges on assets held and used for the 2023 or 2022 period.

*(Gain) Loss on Disposal of Assets and Other.* A loss on disposal of assets and other of $0.3 million was recorded for the 2023 period compared with a gain of $6.9 million for the 2022 period. Activity for the 2022 period was primarily related to the sale of excess land parcels.

*Interest Expense.* Interest expense for Holdings, which includes amortization of debt issuance costs and amortization of accumulated gains for swap amendments, was $36.8 million during the 2023 period compared with $38.1 million for the 2022 period. The interest expense attributable to CUSA, which includes amortization of debt issuance costs and amortization of accumulated losses for swap amendments, was $30.8 million during the 2023 period compared with $32.1 million for the 2022 period. See further discussion at *Liquidity and Capital Resources - Financing Activities* below.

*Equity in Loss of Affiliates.* Equity in loss of affiliates of $2.1 million was recorded during the 2023 period compared with $2.2 million during the 2022 period. See Notes 8 and 9 to the condensed consolidated financial statements for information about our equity investments.

*Income Taxes - Holdings.* An income tax benefit of $3.9 million was recorded for the 2023 period compared with an income tax benefit of $1.8 million for the 2022 period. The effective tax rate was approximately 60.5% for the 2023 period compared with 2.4% for the 2022 period. The effective tax rate was favorably impacted by the use of certain foreign tax credits for which valuation allowances had been established in prior periods. For the 2023 period, we utilized the annual effective tax rate (“AETR”) method to calculate our interim tax provision. However, in the 2022 period, we recorded the interim tax provision using the discrete method as allowed by ASC Topic 740-270-30-18, *Income Taxes Interim Reporting*. We used the discrete method rather than the AETR method due to significant variations in income tax expense relative to changes (increases or decreases) in estimated pretax earnings. Use of the AETR method would have resulted in an unreliable tax rate in the prior period. 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 $8.5 million was recorded for the 2023 period compared with an income tax benefit of $6.5 million for the 2022 period. The effective tax rate was approximately 387.6% for the 2023 period compared with 9.6% for the 2022 period. The effective tax rate was favorably impacted by the use of certain foreign tax credits for which valuation allowances had been established in prior periods. For the 2023 period, we utilized the AETR method to calculate our interim tax provision. However, in the 2022 period, we recorded the interim tax provision using the discrete method as allowed by ASC Topic 740-270-30-18, *Income Taxes Interim Reporting*. We used the discrete method rather than the AETR method due to significant variations in income tax expense relative to changes (increases or decreases) in estimated pretax earnings. Use of the AETR method would have resulted in an unreliable tax rate in the prior period. 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.

### 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. However, our working capital position will 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 $7.9 million for Holdings and $15.7 million for CUSA for the three months ended March 31, 2023, compared with cash used for operating activities of $118.8 million for Holdings and $108.5 million for CUSA for the three months ended March 31, 2022. The increase in cash provided by operating activities was primarily driven by the timing and level of revenue earned during each period and the timing of payments to vendors for expenses incurred during each period.

#### 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 $26.3 million and $8.1 million for the three months ended March 31, 2023 and 2022, respectively. The increase in cash used for investing activities was primarily due to higher capital expenditures in 2023 and proceeds from the sale of excess land parcels recognized during the three months ended March 31, 2022

Below is a summary of capital expenditures, disaggregated by new and existing theatres, for the three months ended March 31, 2023 and 2022 (in millions):

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| New theatres | $1.3 | $6.6 |
| Existing theatres | 25.0 | 12.1 |
| Total capital expenditures | $26.3 | $18.7 |

We operated 516 theatres with 5,833 screens worldwide as of March 31, 2023. Theatres and screens opened and closed during the three months ended March 31, 2023 were as follows:

| U.S. (42 states) | January 1, 2023 | Built | Closed | March 31, 2023 |
| --- | ---: | ---: | ---: | ---: |
| Theatres | 318 | — | (1) | 317 |
| Screens | 4,399 | — | (8) | 4,391 |
| International (14 countries) |  |  |  |  |
| Theatres | 200 | — | (1) | 199 |
| Screens | 1,448 | — | (6) | 1,442 |
| Worldwide |  |  |  |  |
| Theatres | 518 | — | (2) | 516 |
| Screens | 5,847 | — | (14) | 5,833 |

37

As of March 31, 2023, the following signed commitments were outstanding:

| Remainder of 2023 | Theatres (1) | Screens (1) | Estimated Remaining Investment (2) |
| --- | ---: | ---: | ---: |
| U.S. | — | — | $3.5 |
| International | 1 | 4 | 7.8 |
| Total | 1 | 4 | $11.3 |
| Subsequent to 2023 |  |  |  |
| U.S. | 4 | 42 | $27.9 |
| International | 2 | 13 | 1.9 |
| Total | 6 | 55 | $29.8 |
| Total commitments at March 31, 2023 | 7 | 59 | $41.1 |

(1) Based on the expected theatre opening date.

(2) Approximately $11.3 million is to be paid during the remainder of 2023 and $23.8 million and $6.0 million is expected to be paid during 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, we plan to fund capital expenditures for our continued development 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 was $4.9 million and $8.6 million for the three months ended March 31, 2023 and 2022, respectively. The decrease in cash used for financing activities was primarily due to proceeds from a sale leaseback transaction recognized during the three months ended March 31, 2023.

Holdings, at the discretion of its board of directors and subject to applicable law, 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 March 31, 2023 for Holdings and CUSA.

#### Contractual Obligations

There have been no material changes in the contractual obligations previously disclosed in “Liquidity and Capital Resources” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed February 24, 2023.

#### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

#### 4.50% Convertible Senior Notes

On August 21, 2020, Holdings issued $460.0 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 is payable on February 15 and August 15 of each year.

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 Holdings’ common stock and the conversion rate on each such trading day; (2) if Holdings distributes 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 Holdings’ common stock (including due to a stockholder rights plan) or (ii) Holdings’ assets or securities or rights, options or warrants to purchase the same with a per share value exceeding 10% of the trading price of Holdings’ common stock; or (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 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 Holdings’ 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 $18.66 per share (130% of the initial conversion price of $14.35 per share), on each applicable trading day. Upon conversion of the 4.50% Convertible Senior Notes, Holdings will pay or deliver cash, shares of its common stock or a combination of cash and shares of its common stock, at its election.

The initial conversion rate is 69.6767 shares of Holdings’ 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, Holdings 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, and 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, as defined below, which are guaranteed by Holdings). The 4.50% Convertible Notes rank equally in right of payment with all existing and future unsubordinated debt, including all obligations under the 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 4.50% Convertible 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 line of credit (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 line of credit as of March 31, 2023.

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 line of credit 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 line of credit 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. CUSA’s actual ratio as of March 31, 2023 was 2.2 to 1.

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 March 31, 2023, CUSA could have distributed up to approximately $2.87 billion to its parent company and sole stockholder, Holdings.

We have 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 to the condensed consolidated financial statements for discussion of the interest rate swaps.

As of March 31, 2023, there was $624.9 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 March 31, 2023 was approximately 4.6% per annum, after giving effect to the interest rate swap agreements.

#### 5.875% Senior Notes

On March 16, 2021, CUSA issued $405.0 million aggregate principal amount of 5.875% senior notes due 2026, at par value (the “5.875% Senior Notes”). Interest on the 5.875% Senior Notes is payable on March 15 and September 15 of each year. The 5.875% Senior Notes mature on March 15, 2026.

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. CUSA may redeem the 5.875% Senior Notes in whole or in part at redemption prices specified in the indenture.

#### 5.25% Senior Notes

On June 15, 2021, CUSA issued $765.0 million aggregate principal amount of 5.25% senior notes due 2028, at par value (the “5.25% 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 $250.0 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.

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.

CUSA may redeem the 8.75% Secured Notes in whole or in part at redemption prices specified in the indenture.

On March 30, 2023, CUSA sent a notice of optional partial redemption to Computershare Trust Services, N.A. (successor to Wells Fargo Bank, N.A.) (the “Trustee”) to redeem $100 million in principal amount of the 8.75% Secured Notes on May 1, 2023 (the “Redemption Date”) at a cash redemption price equal to 102.188% of the principal amount redeemed plus any accrued and unpaid interest thereon to the Redemption Date. Following the redemption, $150 million in aggregate principal amount of the 8.75% Secured Notes will remain outstanding. See further discussion at Note 19 to the condensed consolidated financial statements for the three months ended March 31, 2023.

#### Borrowings of International Subsidiaries

As of March 31, 2023, certain of the Company’s international subsidiaries have aggregate borrowings of $9.7 million outstanding under various local bank loans. In conjunction with these borrowings, the Company was required to deposit cash into a collateral account to support the issuance of letters of credit to the lenders. The total amount on deposit as of March 31, 2023 was $10.8 million and is considered restricted cash.

#### Covenant Compliance

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 March 31, 2023, CUSA could have distributed up to approximately $3.2 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 March 31, 2023 was 3.1 to 1.

See discussion of dividend restrictions and the net senior secured leverage ratio under the Credit Agreement at *Senior Secured Credit Facility* above.

As of March 31, 2023, we believe we were in full compliance with all agreements, including all related covenants, governing our outstanding debt.

## Market risk

As filed, 2,899 characters.

We have exposure to financial market risks, including changes in interest rates and foreign currency exchange rates.

#### 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. At March 31, 2023, we had an aggregate of $184.6 million of variable rate debt outstanding, after giving effect to the interest rate swaps. Based on the interest rates in effect on the variable rate debt outstanding at March 31, 2023 a 100 basis point increase in market interest rates would increase our annual interest expense by $1.8 million.

The tables below provide information about Holdings' and CUSA’s fixed rate and variable rate long-term debt agreements as of March 31, 2023. Holdings’ long-term debt agreements include 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 March 31, 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | Fair Value | Average Interest Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fixed rate | $100.0 | $450.0 | $1,015.0 | $— | $— | $765.0 | $2,330.0 | $2,327.8 | 5.3% |
| Variable rate | 10.1 | 169.7 | 1.4 | 1.4 | 1.4 | 0.6 | 184.6 | 182.0 | 6.5% |
| Total debt (1) | $110.1 | $619.7 | $1,016.4 | $1.4 | $1.4 | $765.6 | $2,514.6 | $2,509.8 |  |

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

#### CUSA Debt

*(in millions)*

|  | Expected Maturity for the Twelve Months Ending March 31, 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | Fair Value | Average Interest Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fixed rate | $100.0 | $450.0 | $555.0 | $— | $— | $765.0 | $1,870.0 | $1,743.7 | 5.5% |
| Variable rate | 10.1 | 169.7 | 1.4 | 1.4 | 1.4 | 0.6 | 184.6 | 182.0 | 6.5% |
| Total debt (1) | $110.1 | $619.7 | $556.4 | $1.4 | $1.4 | $765.6 | $2,054.6 | $1,925.7 |  |

(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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed February 24, 2023.

## Controls and procedures

As filed, 1,721 characters.

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

As of March 31, 2023, under the supervision and with the participation of Holdings’ and CUSA’s principal executive officer and principal financial officer, Holdings and CUSA carried out an evaluation required by the Exchange Act 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, Holdings’ and CUSA’s principal executive officer and principal financial officer concluded that, as of March 31, 2023, each of Holdings’ and CUSA’s respective disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by each of Holdings and CUSA 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 Holdings’ and CUSA’s management, including Holdings’ and CUSA’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

#### Changes in Internal Control Over Financial Reporting

There have been no changes in Holdings’ and CUSA’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred during the quarter ended March 31, 2023 that materially affected, or are reasonably likely to materially affect, Holdings’ and CUSA’s internal control over financial reporting.

## Risk factors

As filed, 3,546 characters.

Other than as set forth below, we believe there have been no material changes in our risk factors from those disclosed in “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed February 24, 2023.

***We may not be able to generate additional revenue or continue to realize value from our investment in NCM.***

As of March 31, 2023, we owned 43.7 million common shares in National Cinemedia, Inc. (“NCMI”), which represented an ownership interest in NCM of approximately 25.4%. CUSA receives monthly theatre access and advertising fees under an Exhibitor Services Agreement with NCM, and CUSA has received quarterly distributions of excess cash from NCM pursuant to NCM’s operating agreement. During the years ended December 31, 2020, 2021 and 2022, Holdings and CUSA each recorded approximately $36.0 million, $44.1 million and $52.2 million in other revenue related to NCM, respectively, $14.1 million, $0.2 million and $0 million in cash distributions recorded as a reduction of the investment in NCM, respectively, and $7.0 million, $0.1 million and $0 in cash distributions in excess of the investment in NCM, respectively. On February 23, 2023 and March 23, 2023, we redeemed 42.0 million and 1.7 million common units, respectively, of NCM for an equal number of common shares in NCMI. Distributions of excess cash from NCM to its members, including NCMI, were restricted through December 2023 in accordance with the credit agreement amendment NCM entered into with its lenders, and NCMI has suspended its dividend. Cinema advertising is a small component of the U.S. advertising market and therefore, NCM competes with larger, more established and well-known media platforms such as broadcast radio and television, cable and satellite television, outdoor advertising and Internet portals. In-theatre advertising may not continue to attract advertisers or NCM’s in-theatre advertising format may not continue to be received favorably by theatre patrons. If NCM is unable to continue to generate consistent advertising revenue, its results of operations may be adversely affected and our investment in NCMI may be adversely impacted. NCM has a substantial amount of indebtedness and has been significantly impacted by the COVID-19 pandemic. On April 11, 2023, NCM commenced a Chapter 11 bankruptcy proceeding. Our Exhibitor Services Agreement may be rejected or renegotiated as a result of the bankruptcy proceeding, and we may lose all of our equity in NCMI. Additionally, Cineworld Group plc (“Cineworld”) (the parent company of Regal Entertainment, Inc. (“Regal”)), filed for bankruptcy under Chapter 11 in September 2022. As part of that bankruptcy proceeding, Cineworld has filed motions to reject Regal’s Exhibitor Services Agreement with NCM. If the rejection of the Exhibitor Services Agreement is approved, or if Regal closes or disposes of a significant number of theatres, NCM’s advertising revenue will be adversely impacted.

NCMI’s stock price was $0.13 per share at March 31, 2023, which was significantly below the Company’s carrying value of NCMI per common share. As a result of the decrease in stock price and the prolonged recovery of NCM’s business, during the quarter ended March 31, 2023 we wrote-down CUSA’s investment in NCM by $0.7 million to its estimated fair value. Since NCM's revenues are primarily dependent on theatre attendance, future NCM revenues and future dividends from NCMI will depend on the continued recovery of the motion picture exhibition industry.

Filed May 5, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-018072. Last ingested by Listed: Nov 3, 2026, 08:34 ET. No prices; not investment advice.