# Cinemark Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2020

- Company: [Cinemark Holdings, Inc.](/companies/cnk.md) (CIK 1385280)
- Form: 10-Q
- Filed: 2020-06-03
- Accepted by EDGAR: Jun 3, 2020, 06:32 ET
- Period: 2020-03-31
- Accession: 0001564590-20-028134
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1385280/000156459020028134/cnk-10q_20200331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1385280/000156459020028134/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $543.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2020-01-01 to 2020-03-31 | −$42.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-01-01 to 2020-03-31 | $24.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-01-01 to 2020-03-31 | −$3.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | −$59.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-01-01 to 2020-03-31 | −$0.51 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-01-01 to 2020-03-31 | −$0.51 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-01-01 to 2020-03-31 | 116,496,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | −$15.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-01-01 to 2020-03-31 | $34.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2020-01-01 to 2020-03-31 | $42.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2020-03-31 | $479.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-03-31 | $587.7m | us-gaap:AssetsCurrent |
| Total assets | at 2020-03-31 | $5.63bn | us-gaap:Assets |
| Current liabilities | at 2020-03-31 | $600.4m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2020-03-31 | $1.87bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2020-03-31 | $6.6m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2020-03-31 | $1.25bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,266 characters.

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.

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 March 31, 2020, we managed our business under two reportable operating segments – U.S. markets and international markets. See Note 17 to our condensed consolidated financial statements.

We generate revenues primarily from filmed entertainment box office receipts and concession sales with additional revenues from screen advertising sales 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 live and pre-recorded sports programs, concert events, the Metropolitan Opera, in-theatre gaming and other special events in our theatres through 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 three months ended March 31, 2020 included *Bad Boys for Life, 1917, Sonic the Hedgehog, Jumanji: The Next Level, Star Wars: Episode IX – The Rise of Skywalker, Birds of Prey, Dolittle, Little Women, The Invisible Man* and *The Call of the Wild*. Films scheduled for release during the remainder of 2020 include *Wonder Woman 1984, No Time To Die, Mulan, Black Widow, A Quiet Place: Part 2, Top Gun: Maverick, Tenet,* and *The King’s Man,* among other films.

Film rental costs are variable in nature and fluctuate with our admissions revenues. Film rental costs as a percentage of revenues are generally higher for periods in which more blockbuster films are released. The Company also receives virtual print fees from studios for certain of its international locations, which are included as a contra-expense in film rentals and advertising costs. Advertising costs, which are expensed as incurred, are primarily related to campaigns for new and renovated theatres, loyalty and membership programs and brand advertising that vary depending on the timing of such campaigns.

Concession supplies expense is variable in nature and fluctuates with our concession revenues and product mix. We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain volume rates.

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 move in relation to revenues as theatre staffing is adjusted to respond to changes in attendance. In some international locations, staffing levels are also subject to local regulations.

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 revenues is also affected by the number of theatres under operating leases, the number of theatres under capital and finance leases and the number of owned theatres.

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

General and administrative expenses are primarily fixed in nature and consist of the costs to support the overall management of the Company, including salaries and wages, incentive compensation and benefit costs for our corporate office personnel, facility expenses for our corporate offices, consulting fees, legal fees, audit fees, supplies and other costs that are not specifically associated with the operations of our theatres.

### Recent Developments

#### Impact of COVID-19

The recent outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry. The situation continues to be volatile and the social and economic effects are widespread. As a movie exhibitor that operates spaces where patrons gather in close proximity, our business is significantly impacted by protective actions that federal, state and local governments have taken to control the spread of the pandemic. These actions include, among other things, encouragement of social distancing, restrictions on freedom of movement, business closures, quarantines, and shelter-in-place and stay-at-home orders. As a result of these measures, we temporarily closed all of our theatres in the U.S. and Latin America effective March 18, 2020.

We believe we have sufficient cash to sustain our operations for the remainder of the year, even if our theatres remained closed for the remainder of the year. Nonetheless, the COVID-19 pandemic has had and may continue to have adverse effects on our business, results of operations, cash flows, financial condition, access to credit markets. In light of the COVID-19 pandemic, we have been working to preserve cash and ensure sufficient liquidity to endure the impacts of the global crisis, even if prolonged. Some of the actions taken by us include the following:

- our directors and chief executive officer have elected to take no salary, and many of our executives have voluntarily reduced their salaries by 80% while our theatres remain closed;
- halted all non-essential operating and capital expenditures, such as marketing promotions and initiatives, travel and entertainment, system enhancements and related consulting projects, recliner conversions, XD expansions and certain other theatre enhancements, which will significantly reduce utilities and other costs, general and administrative expenses and capital expenditures on a temporary basis;
- suspended the quarterly dividend;
- implemented a formal daily review and approval process by our chief financial officer for all outgoing procurement and payment requests;
- laid off over 17,500 domestic hourly theatre employees, furloughed 50% of headquarter employees at 20% of salary (with full benefits) and reduced salaries of remaining employees by 50% and pursued similar actions in international markets to the extent permitted by local laws; which will significantly reduce salaries and wages expenses and general administrative expenses while theatres are closed; and
- started working actively with landlords and major suppliers to modify the timing of certain contractual payments.

We continue to evaluate the impact of certain tax-related benefits available under the Cares Act, which, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, NOL utilization and carryback periods, modifications to the net interest deduction limitations and a technical correction to the 2017 Tax Cuts and Jobs Act, which makes certain qualified improvement property eligible for bonus depreciation. Based upon a review of the Cares Act, we expect to:

- receive an approximately $20 million cash tax refund in 2020 related to qualified improvement property expenditures from 2018 and 2019;
- benefit from the ability to defer social security payroll tax matches that would otherwise be required in 2020;
- receive a payroll tax credit in 2020 for expenses related to paying wages and health benefits to employees who are not working as a result of closures and reduced receipts associated with COVID-19; and
- apply any tax loss incurred in 2020 to prior year income for a refund when our 2020 tax return is filed.

We continue to review, and intend to seek, other available potential benefits under the Cares Act as well as any future legislation signed into law during 2020.

#### Issuance of 8.750% Senior Secured Notes

On April 20, 2020, we issued $250 million 8.750% senior secured notes (the “8.750% Secured Notes”). The notes will mature on May 1, 2025; provided, however, that if (i) on September 13, 2022, the aggregate outstanding principal amount of the 5.125% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50 million, the notes will mature on September 14, 2022 and (ii) on February 27, 2023, the aggregate outstanding principal amount of the 4.875% Senior Notes that shall not have been purchased, repurchased, redeemed, defeased or otherwise acquired, retired, cancelled or discharged exceeds $50 million, the notes will mature on February 28, 2023. Interest on the notes will be payable on May 1 and November 1 of each year, beginning on November 1, 2020.

The 8.750% Secured Notes will be fully and unconditionally guaranteed on a joint and several senior basis by certain of our subsidiaries that guarantee, assume or in any other manner become liable with respect to any of our or our guarantors’ other debt. If we cannot make payments on the 8.750% Secured Notes when they are due, our guarantors must make them instead. Under certain circumstances, the guarantees may be released without action by, or the consent of, the holders of the 8.750% Secured Notes.

The 8.750% Secured Notes and the guarantees will be ours and our guarantors’ senior obligations and they will:

- rank effectively senior in right of payment to our and our guarantors’ existing and future debt that is not secured by the collateral as described within the indentures to the 8.750% Secured Notes (“Collateral”), including all obligations under

the Credit Agreement, and unsecured obligations, including the existing senior notes, in each case to the extent of the value of the collateral;

- rank effectively junior to our and our guarantors’ existing and future debt secured by assets that are not part of the Collateral to the extent of the value of the collateral securing such debt, including all obligations under the Credit Agreement;
- otherwise rank equally in right of payment to our and our guarantors’ existing and future senior debt, including debt under the Credit Agreement and the existing senior notes;
- rank senior in right of payment to our and our guarantors’ future subordinated debt; and
- be structurally subordinated to all existing and future debt and other liabilities of our non-guarantor subsidiaries.

The indenture to the 8.750% Secured Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. 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. Upon a change of control, as defined in the indenture governing the 8.750% Secured Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 8.750% 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 indenture governing the 8.750% Secured Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies a coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances.

On April 20, 2020, in conjunction with the issuance of the 8.750% Secured Notes, we obtained a waiver of the maintenance covenant from the majority of revolving lenders under the Credit Agreement for the fiscal quarters ending September 30, 2020 and December 31, 2020.

### Results of Operations

The following table sets forth, for the periods indicated, certain operating data and the percentage of revenues represented by certain items reflected in our condensed consolidated statements of income.

| Operating data (in millions): Revenues | Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Admissions | $292.5 | $395.5 |
| Concession | 190.4 | 251.3 |
| Other | 60.7 | 67.9 |
| Total revenues | $543.6 | $714.7 |
| Cost of operations |  |  |
| Film rentals and advertising | 156.6 | 210.1 |
| Concession supplies | 34.8 | 43.1 |
| Salaries and wages | 87.6 | 96.1 |
| Facility lease expense | 82.2 | 85.6 |
| Utilities and other | 100.5 | 110.6 |
| General and administrative expenses | 41.0 | 38.0 |
| Depreciation and amortization | 65.3 | 64.5 |
| Impairment of long-lived assets | 16.6 | 5.6 |
| Loss on disposal of assets and other | 1.9 | 3.8 |
| Total cost of operations | 586.5 | 657.4 |
| Operating income (loss) | $(42.9) | $57.3 |
| **Operating data as a percentage of total revenues:** |  |  |
| Revenues |  |  |
| Admissions | 53.8% | 55.3% |
| Concession | 35.0% | 35.2% |
| Other | 11.2% | 9.5% |
| Total revenues | 100.0% | 100.0% |
| Cost of operations (1) |  |  |
| Film rentals and advertising | 53.5% | 53.1% |
| Concession supplies | 18.3% | 17.2% |
| Salaries and wages | 16.1% | 13.4% |
| Facility lease expense | 15.1% | 12.0% |
| Utilities and other | 18.5% | 15.5% |
| General and administrative expenses | 7.5% | 5.3% |
| Depreciation and amortization | 12.0% | 9.0% |
| Impairment of long-lived assets | 3.1% | 0.8% |
| Loss on disposal of assets and other | 0.3% | 0.5% |
| Total cost of operations | 107.9% | 92.0% |
| Operating income (loss) | (7.9)% | 8.0% |
| Average screen count (month end average) | 6,139 | 6,044 |
| Total revenues per average screen (dollars) | $88,551 | $118,253 |

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

### Three months ended March 31, 2020 versus March 31, 2019

*Revenues.* All of our domestic theatres were temporarily closed effective March 17, 2020 and all of our international theatres were temporarily closed effective March 18, 2020 as a result of the COVID-19 pandemic. See further discussion at *Recent Developments* and Note 2 of our condensed consolidated financial statements. Total revenues decreased $171.1 million to $543.6 million for the three months ended March 31, 2020 (“first quarter of 2020”) from $714.7 million for the three months ended March 31, 2019 (“first quarter of 2019”). The table below, presented by reportable operating segment, summarizes our revenue performance and certain key performance indicators for the three months ended March 31, 2020 and 2019.

|  | U.S. Operating Segment 2020 | 2019 | % Change | International Operating Segment 2020 | 2019 | % Change | Constant Currency (3) 2020 | % Change | Consolidated 2020 | 2019 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Admissions revenues (1) | $232.3 | $308.8 | (24.8)% | $60.2 | $86.7 | (30.6)% | $71.1 | (18.0)% | $292.5 | $395.5 | (26.0)% |
| Concession revenues (1) | $152.8 | $199.4 | (23.4)% | $37.6 | $51.9 | (27.6)% | $43.7 | (15.8)% | $190.4 | $251.3 | (24.2)% |
| Other revenues (1)(2) | $42.3 | $46.6 | (9.2)% | $18.4 | $21.3 | (13.6)% | $22.6 | 6.1% | $60.7 | $67.9 | (10.6)% |
| Total revenues (1)(2) | $427.4 | $554.8 | (23.0)% | $116.2 | $159.9 | (27.3)% | $137.4 | (14.1)% | $543.6 | $714.7 | (23.9)% |
| Attendance (1) | 27.9 | 38.7 | (27.9)% | 17.9 | 23.6 | (24.2)% |  |  | 45.8 | 62.3 | (26.5)% |
| Average ticket price (1) | $8.33 | $7.98 | 4.4% | $3.36 | $3.67 | (8.4)% | $3.97 | 8.2% | $6.39 | $6.35 | 0.6% |
| Concession revenues per patron (1) | $5.48 | $5.15 | 6.4% | $2.10 | $2.20 | (4.5)% | $2.44 | 10.9% | $4.16 | $4.03 | 3.2% |

(1) Revenues and attendance amounts in millions. Average ticket price is calculated as admissions revenues divided by attendance. Concession revenues per patron is calculated as concession revenues divided by attendance.

(2) U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 17 to our condensed consolidated financial statements.

(3) Constant currency revenue amounts, which are non-GAAP measurements, were calculated using the average exchange rate for the corresponding month for 2019. 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.* Admissions revenues decreased $76.5 million primarily due to a 27.9% decrease in attendance, partially offset by a 4.4% increase in average ticket price. The increase in average ticket price was primarily due to price increases, partially offset by the impact of the deferral of admissions revenues for loyalty points issued. Concession revenues decreased $46.6 million primarily due to the 27.9% decrease in attendance, partially offset by a 6.4% increase in concession revenues per patron. Concession revenues per patron grew primarily due to incremental sales of traditional concession products, continued expansion of concession offerings and price increases. Attendance declined primarily due to the temporary closure of all of our U.S. theatres on March 17, 2020. Other revenues decreased $4.3 million as a result of the temporary closure of theatres.
- *International.* Admissions revenues decreased $26.5 million as reported ($15.6 million in constant currency). Average ticket price decreased 8.4% as reported (increased 8.2% in constant currency). Concession revenues decreased $14.3 million as reported ($8.2 million in constant currency). Concession revenues per patron decreased by 4.5% as reported (increased 10.9% in constant currency). Average ticket price and concession revenues per patron decreased, as reported, primarily due to the impact of changes in foreign currency exchange rates in certain countries in which we operate, partially offset by price increases. Attendance declined primarily due to the temporary closure of all of our international theatres on March 18, 2020.

*Cost of Operations.* The table below summarizes our theatre operating costs (in millions) by reportable operating segment for the three months ended March 31, 2020 and 2019.

|  | U.S. Operating Segment 2020 | 2019 | International Operating Segment 2020 | 2019 | Constant Currency (1) 2020 | Consolidated 2020 | 2019 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Film rentals and advertising | $128.0 | $169.2 | $28.6 | $40.9 | $33.9 | $156.6 | $210.1 |
| Concession supplies | $25.6 | $32.0 | $9.2 | $11.1 | $10.9 | $34.8 | $43.1 |
| Salaries and wages | $71.2 | $76.8 | $16.4 | $19.3 | $19.6 | $87.6 | $96.1 |
| Facility lease expense | $65.4 | $64.9 | $16.8 | $20.7 | $19.3 | $82.2 | $85.6 |
| Utilities and other | $75.0 | $79.8 | $25.5 | $30.8 | $30.2 | $100.5 | $110.6 |

(1) Constant currency expense amounts, which are non-GAAP measurements were calculated using the average exchange rate for the corresponding month for 2019. 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 were $128.0 million, or 55.1% of admissions revenues, for the first quarter of 2020 compared to $169.2 million, or 54.8% of admissions revenues, for the first quarter of 2019. Concession supplies expense was $25.6 million, or 16.8% of concession revenues, for the first quarter of 2020 compared to $32.0 million, or 16.0% of concession revenues, for the first quarter of 2019. The increase in the concession supplies rate was primarily due to expanded food and beverage offerings and the impact of disposing perishable food as a result of temporarily closing our theatres.

Salaries and wages decreased to $71.2 million for the first quarter of 2020 from $76.8 million for the first quarter of 2019 primarily due to the temporary closure of all of our U.S. theatres on March 17, 2020. Facility lease expense increased to $65.4 million for the first quarter of 2020 from $64.9 million for the first quarter of 2019 primarily due to new theatres. Utilities and other costs decreased to $75.0 million for the first quarter of 2020 from $79.8 million for the first quarter of 2019 due to the temporary closure of all of our U.S. theatres on March 17, 2020 which resulted in lower revenues and lower credit card fees and third party ticket sales commissions.

- *International.* Film rentals and advertising costs were $28.6 million ($33.9 million in constant currency), or 47.5% of admissions revenues, for the first quarter of 2020 compared to $40.9 million, or 47.2% of admissions revenues, for the first quarter of 2019. Concession supplies expense was $9.2 million ($10.9 million in constant currency), or 24.5% of concession revenues, for the first quarter of 2020 compared to $11.1 million, or 21.4% of concession revenues, for the first quarter of 2019. The increase in the concession supplies rate was primarily due to expanded food and beverage offerings and the impact of disposing perishable food as a result of temporarily closing our theatres.

Salaries and wages decreased to $16.4 million (increased to $19.6 million in constant currency) for the first quarter of 2020 compared to $19.3 million for the first quarter of 2019. The increase in constant currency was due to new theatres, partially offset by decreased attendance due to the temporary closure of all of our international theatres on March 18, 2020. Facility lease expense decreased to $16.8 million ($19.3 million in constant currency) for the first quarter of 2020 compared to $20.7 million for the first quarter of 2019. The decrease was due to lower percentage rent due to the temporary closure of all of our international theatres on March 18, 2020. Utilities and other costs decreased to $25.5 million ($30.2 million in constant currency) for the first quarter of 2020 compared to $30.8 million for the first quarter of 2019 due to the temporary closure of all of our international theatres on March 18, 2020 which resulted in lower revenues and lower credit card fees and third party ticket sales commissions, as well as lower 3D glasses expenses, partially offset by an increase in utilities expense.

*General and Administrative Expenses.* General and administrative expenses increased to $41.0 million for the first quarter of 2020 from $38.0 million for the first quarter of 2019. The increase was primarily due to inflation, increases in salaries and incentive compensation and increased cloud-based software costs, which were partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.

*Depreciation and Amortization.* Depreciation and amortization expense increased to $65.3 million during the first quarter of 2020 compared to $64.5 million during the first quarter of 2019. The increase was primarily due to new theatres.

*Impairment of Long-Lived Assets.* We recorded asset impairment charges on assets held and used of $16.6 million during the first quarter of 2020 compared to $5.6 million during the first quarter of 2019. The long-lived asset impairment charges recorded during each of the periods presented were specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre. The long-lived asset impairment charges recorded during the first quarter of 2020 were also impacted by the temporary closure of our theatres and the associated assumptions related to estimated future cash flows. Impairment charges for the first quarter of 2020 impacted eight countries and impairment charges for the first quarter of 2019 impacted two countries. See Note 13 to our condensed consolidated financial statements.

*Loss on Disposal of Assets and Other.* We recorded a loss on disposal of assets and other of $1.9 million during the first quarter of 2020 compared to $3.8 million during the first quarter of 2019. Activity for the first quarter of 2020 and 2019 was primarily due to the retirement of assets related to theatre remodels.

*Interest Expense.* Interest costs incurred, including amortization of debt issue costs, were $25.0 million during the first quarter of 2020 compared to $25.1 million during the first quarter of 2019.

*Distributions from NCM.* We recorded distributions from NCM of $5.2 million during the first quarter of 2020 compared to $4.5 million recorded during the first quarter of 2019, which were in excess of the carrying value of our Tranche 1 investment. See Note 9 to our condensed consolidated financial statements.

*Interest expense – NCM.* We recorded non-cash interest expense of $5.9 million for the first quarter of 2020 compared to $4.8 million recorded during the first quarter of 2019, related to the significant financing component associated with certain of our agreements with NCM. See Note 9 to our condensed consolidated financial statements for further discussion.

*Equity in Income of Affiliates.* We recorded equity in income of affiliates of $8.5 million during the first quarter of 2020 compared to $10.4 million during the first quarter of 2019. See Notes 9 and 10 to our condensed consolidated financial statements for information about our equity investments.

*Income Taxes.* An income tax benefit of $3.1 million was recorded for the first quarter of 2020 compared to income tax expense of $11.9 million for the first quarter of 2019. The effective tax rate was approximately 4.97% for the first quarter of 2020 compared to 26.42% for the first quarter of 2019. The income tax provision for the three months ended March 31, 2020 was unfavorably impacted by $16.1 million of net discrete tax charges, including a $5.2 million charge related to a valuation allowance recorded against certain foreign net deferred tax assets in Colombia and Central America and $10.7 million related to the remeasurement of deferred tax balances due to a projected net operating loss carryback. 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 revenues in cash, mainly through box office receipts and the sale of concessions. Our revenues are 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, we temporarily closed all of our theatres effective March 18, 2020 as discussed above in *Recent Developments* and will fund operating expenses while our theatres are closed with cash on hand and additional financing discussed below under *Financing Activities*. Cash used for operating activities was $15.6 million for the three months ended March 31, 2020 compared to cash provided by operating activities of $104.3 million for the three months ended March 31, 2019. The decrease in cash provided by operating activities was primarily due to the Company’s net loss as a result of the temporary closure of all of our theatres effective March 18, 2020 and the level and timing of payments to suppliers during each respective period.

#### Investing Activities

Our investing activities have been principally related to the development, remodel and acquisition of theatres. New theatre openings 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 $34.1 million for the three months ended March 31, 2020 compared to $57.5 million for the three months ended March 31, 2019.

Capital expenditures for the three months ended March 31, 2020 and 2019 were as follows (in millions):

| Period | New Theatres | Existing Theatres | Total |
| --- | ---: | ---: | ---: |
| Three Months Ended March 31, 2020 | $8.1 | $26.0 | $34.1 |
| Three Months Ended March 31, 2019 | $15.0 | $42.6 | $57.6 |

We operated 555 theatres with 6,145 screens worldwide as of March 31, 2020. Theatres and screens acquired, built and closed during the three months ended March 31, 2020 were as follows:

| U.S | January 1, 2020 | Built | Closed | March 31, 2020 |
| --- | ---: | ---: | ---: | ---: |
| Theatres | 345 | 1 | 1 | 345 |
| Screens | 4,645 | 12 | 8 | 4,649 |
| International |  |  |  |  |
| Theatres | 209 | 1 | — | 210 |
| Screens | 1,487 | 9 | — | 1,496 |
| Worldwide |  |  |  |  |
| Theatres | 554 | 2 | 1 | 555 |
| Screens | 6,132 | 21 | 8 | 6,145 |

36

As of March 31, 2020, we had the following signed commitments (costs in millions):

| Remainder of 2020 | Theatres | Screens | Estimated Cost |
| --- | ---: | ---: | ---: |
| U.S. | 3 | 30 | $24 |
| International | 2 | 18 | $5 |
| Total | 5 | 48 |  |
| Subsequent to 2020 |  |  |  |
| U.S. | 9 | 112 | $79 |
| International | 8 | 63 | $35 |
| Total | 17 | 175 |  |
| Total commitments at March 31, 2020 | 22 | 223 | $143 |

Actual expenditures for continued theatre development, remodels and acquisitions are subject to change based upon the availability of attractive opportunities. We plan to fund capital expenditures for our continued development with cash flow from operations, borrowings under our senior secured credit facility, and proceeds from debt issuances, sale leaseback transactions and/or sales of excess real estate.

#### Financing Activities

Cash provided by financing activities was $48.0 million for the three months ended March 31, 2020 compared to cash used for financing activities of $47.9 million for the three months ended March 31, 2019. The increase in cash provided by financing activities was primarily due to the $98.8 million proceeds from borrowings on the Company’s revolving credit line.

We, at the discretion of the board of directors and subject to applicable law, may pay dividends on our common stock. The amount, if any, of the dividends to be paid in the future will depend upon our then available cash balance, 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 discussed above in *Recent Developments*, we have suspended our quarterly dividend due to the impact of the COVID-19 pandemic.

We may from time to time, subject to compliance with our debt instruments, purchase our debt securities on the open market depending upon the availability and prices of such securities. Long-term debt consisted of the following as of March 31, 2020 (in millions):

|  |  |
| --- | ---: |
| Cinemark USA, Inc. term loan | $644.7 |
| Cinemark USA, Inc. revolving line of credit | 98.8 |
| Cinemark USA, Inc. 5.125% senior notes due 2022 | 400.0 |
| Cinemark USA, Inc. 4.875% senior notes due 2023 | 755.0 |
| Total long-term debt | $1,898.5 |
| Less current portion | 6.6 |
| Subtotal long-term debt, less current portion | $1,891.9 |
| Less: Debt discounts and debt issuance costs, net of accumulated amortization | 22.1 |
| Long-term debt, less current portion, net of debt issuance costs | $1,869.8 |

As of March 31, 2020, approximately $0.1 million was available for borrowing under the revolving line of credit after giving effect to a $1.1 million letter of credit outstanding.

#### Contractual Obligations

There have been no material changes in our contractual obligations previously disclosed in “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended December 31, 2019 filed February 21, 2020.

#### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

#### Senior Secured Credit Facility

Cinemark USA, Inc. 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. After giving effect to a letter of credit outstanding as of March 31, 2020, Cinemark USA, Inc. had no available borrowing capacity on the revolving credit line.

Interest on the term loan accrues at Cinemark USA, Inc.’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.

Cinemark USA, Inc.’s obligations under the Credit Agreement are guaranteed by Cinemark Holdings, Inc. and certain of Cinemark USA, Inc.’s domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of Cinemark USA, Inc.’s and the guarantors’ personal property, including, without limitation, pledges of all of Cinemark USA, Inc.’s capital stock, all of the capital stock of certain of Cinemark USA, Inc.’s domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries.

The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.’s ability, and in certain instances, its subsidiaries’ and our 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 Cinemark USA, Inc. 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. As of March 31, 2020, the actual ratio was approximately 0.72 to 1.

The dividend restriction contained in the Credit Agreement prevents the Company and any of its subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) the Company is not in default, and the distribution would not cause Cinemark USA, Inc. 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 board of directors, is less than the sum of (a) the aggregate amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity since December 18, 2012, (b) Cinemark USA, Inc.’s consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the Credit Agreement, and (c) certain other defined amounts. As of March 31, 2020, Cinemark USA, Inc. could have distributed up to approximately $3,227 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the Credit Agreement, subject to its available cash and other borrowing restrictions outlined in the agreement.

We have four 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.

At March 31, 2020, there was $644.7 million outstanding under the term loan, $98.8 million of borrowings were outstanding under the $100.0 million revolving line of credit and approximately $0.1 million was available for borrowing under the revolving credit line after giving effect to a $1.1 million letter of credit outstanding. On April 3, 2020, the letter of credit was cancelled and was no longer outstanding. The average interest rate on outstanding term loan borrowings under the Credit Agreement at March 31, 2020 was approximately 3.5% per annum, after giving effect to the interest rate swap agreements discussed above. The average interest rate on the outstanding revolver borrowings was 2.9% at March 31, 2020.

#### Cinemark USA, Inc. 5.125% Senior Notes

On December 18, 2012, Cinemark USA, Inc. issued $400.0 million aggregate principal amount of 5.125% Senior Notes due 2022, at par value (the “5.125% Senior Notes”). Interest on the 5.125% Senior Notes is payable on June 15 and December 15 of each year. The 5.125% Senior Notes mature on December 15, 2022.

The indenture to the 5.125% Senior Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. 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, 2020, Cinemark USA, Inc. could have distributed up to approximately $3,373 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 5.125% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture governing the 5.125% Senior Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 5.125% Senior 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 indenture governing the 5.125% Senior Notes allows Cinemark USA, Inc. 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, 2020 was approximately 6.6 to 1.

#### Cinemark USA, Inc. 4.875% Senior Notes

On May 24, 2013, Cinemark USA, Inc. issued $530.0 million aggregate principal amount of 4.875% Senior Notes due 2023, at par value (the “4.875% Senior Notes”). On March 21, 2016, Cinemark USA, Inc. issued an additional $225.0 million aggregate principal amount of the 4.875% Senior Notes at 99.0% of the principal amount plus accrued and unpaid interest from December 1, 2015. These additional notes have identical terms, other than the issue date, the issue price and the first interest payment date, and constitute part of the same series as the Company’s existing 4.875% Senior Notes. Interest on the 4.875% Senior Notes is payable on June 1 and December 1 of each year. The 4.875% Senior Notes mature on June 1, 2023.

The indenture to the 4.875% Senior Notes contains covenants that limit, among other things, the ability of Cinemark USA, Inc. 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, 2020, Cinemark USA, Inc. could have distributed up to approximately $3,367 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 4.875% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture governing the 4.875% Senior Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 4.875% Senior 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 indenture governing the 4.875% Senior Notes allows Cinemark USA, Inc. 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, 2020 was approximately 6.6 to 1.

#### Covenant Compliance

As of March 31, 2020, we believe we were in full compliance with all agreements, including all related covenants, governing our outstanding debt.

## Market risk

As filed, 2,045 characters.

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

#### Interest Rate Risk

We are currently party to a variable rate debt facility. An increase or decrease in interest rates would affect our interest expense relating to our variable rate debt. At March 31, 2020, we had an aggregate of approximately $143.5 million of variable rate debt outstanding. Based on the interest rates in effect on the variable rate debt outstanding at March 31, 2020, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $1.4 million.

The table below provides information about our fixed rate and variable rate long-term debt agreements as of March 31, 2020:

*(in millions)*

|  | Expected Maturity for the Twelve-Month Periods Ending March 31, 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair Value | Average Interest Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fixed rate | $— | $— | $400.0 | $755.0 | $600.0 | $— | $1,755.0 | $1,355.4 | 4.5% |
| Variable rate (1) | 6.6 | 6.6 | 105.4 | 6.6 | 18.3 | — | 143.5 | 135.5 | 3.0% |
| Total debt | $6.6 | $6.6 | $505.4 | $761.6 | $618.3 | $— | $1,898.5 | $1,490.9 |  |

#### Interest Rate Swap Agreements

All of our interest rate swap agreements qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on our 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 our Annual Report on Form 10-K for the year ended December 31, 2019 filed February 21, 2020.

## Controls and procedures

As filed, 1,528 characters.

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

As of March 31, 2020, we carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2020, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit 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 our management, including our 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 our 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, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 303 characters.

See discussion in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 filed February 21, 2020, as updated by the information related to COVID-19 that was included in a Form 8-K that was filed on April 13, 2020, including the documents incorporated by reference therein.

Filed Jun 3, 2020.
Source: SEC EDGAR, the filing index for accession 0001564590-20-028134. Last ingested by Listed: Nov 3, 2026, 08:34 ET. No prices; not investment advice.