# Cinemark Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2020

- Company: [Cinemark Holdings, Inc.](/companies/cnk.md) (CIK 1385280)
- Form: 10-Q
- Filed: 2020-08-04
- Accepted by EDGAR: Aug 4, 2020, 11:48 ET
- Period: 2020-06-30
- Accession: 0001564590-20-035881
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1385280/000156459020035881/cnk-10q_20200630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1385280/000156459020035881/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-04-01 to 2020-06-30 | $9.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2020-01-01 to 2020-06-30 | $552.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2020-04-01 to 2020-06-30 | −$214.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2020-01-01 to 2020-06-30 | −$257.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-04-01 to 2020-06-30 | $28.4m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2020-01-01 to 2020-06-30 | $53.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-04-01 to 2020-06-30 | −$98.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2020-01-01 to 2020-06-30 | −$101.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-04-01 to 2020-06-30 | −$170.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2020-01-01 to 2020-06-30 | −$230.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-04-01 to 2020-06-30 | −$1.45 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2020-01-01 to 2020-06-30 | −$1.96 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-04-01 to 2020-06-30 | −$1.45 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2020-01-01 to 2020-06-30 | −$1.96 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-04-01 to 2020-06-30 | 116,666,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2020-01-01 to 2020-06-30 | 116,581,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2020-01-01 to 2020-06-30 | −$153.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-04-01 to 2020-06-30 | $12.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 6 months, 2020-01-01 to 2020-06-30 | $47.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2020-01-01 to 2020-06-30 | $42.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2020-06-30 | $571.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-06-30 | $744.7m | us-gaap:AssetsCurrent |
| Total assets | at 2020-06-30 | $5.69bn | us-gaap:Assets |
| Current liabilities | at 2020-06-30 | $596.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2020-06-30 | $2.12bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2020-06-30 | $7.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2020-06-30 | $1.09bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 58,483 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.

#### Recent Developments

The outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry. The social and economic effects are widespread, and the situation continues to evolve. As a movie exhibitor that operates spaces where patrons gather in close proximity, our business has been, and continues to be, significantly impacted by protective actions taken by governmental authorities to control the spread of the pandemic. To comply with government mandates, we temporarily closed all of our theatres in the U.S. and Latin America effective March 17, 2020 and March 18, 2020, respectively.

Because of our focus on maintaining a healthy balance sheet and low leverage, we believe we entered the global COVID-19 crisis in a strong financial position. Even if our theatres remained closed for the remainder of the year, we believe we have sufficient cash to sustain operations into 2021. 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 and ability to service our existing and future indebtedness.

In conjunction with the temporary closure of our theatres in March 2020, we implemented temporary personnel and salary reductions, halted non-essential operating and capital expenditures, suspended our quarterly dividend, negotiated modified timing and/or abatement of contractual payments with landlords and other major suppliers.

We continue to evaluate availability of new studio content, the status of the COVID-19 pandemic and local government regulations in assessing our reopening plans. We reopened five of our domestic theatres in June 2020 as part of a test-and-learn strategy to define training, communication, implementation and execution of enhanced health and safety protocols. These theatres opened to reduced operating hours with library content and “welcome back” pricing for tickets and concession products to encourage patrons to return to the movies. We expanded this test-and-learn strategy to ten additional theatres on July 31, 2020 to further assess protocols and analyze results in other markets across the U.S. We are evaluating the timing of our phased reopening of additional theatres, which is subject to the status of the COVID-19 pandemic, local government regulations and availability of new studio content. We are still evaluating the timing of reopening of our theatres in Latin America.

#### General Information

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 June 30, 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 six months ended June 30, 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 currently scheduled for release during the remainder of 2020 include *Tenet, Wonder Woman 1984, No Time To Die, Black Widow, Soul, West Side Story, Croods 2* and *The King’s Man,* among other films. We note that the films scheduled for release during the remainder of 2020 could be rescheduled as a result of the COVID-19 pandemic as discussed above and at Note 2 to our condensed consolidated financial statements.

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.

### 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 June 30, 2020 | 2019 | Six Months Ended June 30, 2020 | 2019 |
| --- | ---: | ---: | ---: | ---: |
| Admissions | $— | $521.1 | $292.5 | $916.6 |
| Concession | 0.1 | 345.3 | 190.5 | 596.6 |
| Other | 8.9 | 91.4 | 69.6 | 159.3 |
| Total revenues | $9.0 | $957.8 | $552.6 | $1,672.5 |
| Cost of operations |  |  |  |  |
| Film rentals and advertising | 0.4 | 294.7 | 157.0 | 504.8 |
| Concession supplies | 2.4 | 62.7 | 37.2 | 105.8 |
| Salaries and wages | 8.8 | 108.9 | 96.4 | 205.0 |
| Facility lease expense | 65.2 | 89.5 | 147.4 | 175.1 |
| Utilities and other | 34.9 | 122.7 | 135.4 | 233.3 |
| General and administrative expenses | 28.0 | 44.3 | 69.0 | 82.3 |
| Depreciation and amortization | 63.5 | 64.5 | 128.8 | 129.0 |
| Impairment of long-lived assets | — | 12.5 | 16.6 | 18.1 |
| Restructuring costs | 19.5 | — | 19.5 | — |
| Loss on disposal of assets and other | 0.4 | 1.8 | 2.3 | 5.6 |
| Total cost of operations | 223.1 | 801.6 | 809.6 | 1,459.0 |
| Operating income (loss) | $(214.1) | $156.2 | $(257.0) | $213.5 |
| **Operating data as a percentage of total revenues:** |  |  |  |  |
| Revenues |  |  |  |  |
| Admissions | 0.0% | 54.4% | 52.9% | 54.8% |
| Concession | 1.1% | 36.1% | 34.5% | 35.7% |
| Other | 98.9% | 9.5% | 12.6% | 9.5% |
| Total revenues | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of operations (1) |  |  |  |  |
| Film rentals and advertising | NM | 56.6% | 53.7% | 55.1% |
| Concession supplies | NM | 18.2% | 19.5% | 17.7% |
| Salaries and wages | NM | 11.4% | 17.4% | 12.3% |
| Facility lease expense | NM | 9.3% | 26.7% | 10.5% |
| Utilities and other | NM | 12.8% | 24.5% | 13.9% |
| General and administrative expenses | NM | 4.6% | 12.5% | 4.9% |
| Depreciation and amortization | NM | 6.7% | 23.3% | 7.7% |
| Impairment of long-lived assets | NM | 1.3% | 3.0% | 1.1% |
| Restructuring costs | NM | —% | 3.5% | —% |
| Loss on disposal of assets and other | NM | 0.2% | 0.4% | 0.3% |
| Total cost of operations | NM | 83.7% | 146.5% | 87.2% |
| Operating income (loss) | NM | 16.3% | (46.5)% | 12.8% |
| Average screen count (month end average) | 6,087 | 6,068 | 6,109 | 6,057 |
| Total revenues per average screen (dollars) | NM | $157,837 | NM | $276,123 |

(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. Certain values are considered not meaningful (“NM”) as they are not comparable due to the theatre closures effective March 18, 2020.

### Three months ended June 30, 2020 versus June 30, 2019

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. We opened five domestic theatres in late June to test our new health and safety protocols, showing library content. We expanded this test-and-learn strategy to ten additional theatres on July 31, 2020. We are evaluating the timing of our phased reopening of additional theatres, which is subject to the status of the COVID-19 pandemic, local government regulations and availability of new studio content. The Company is still evaluating the timing of reopening of its theatres in Latin America.

We offered “welcome back” pricing for movie tickets and concession products to encourage our patrons to return to the movies. During the three months ended June 30, 2020 we had 13 thousand patrons visit our five domestic theatres and generated $37 thousand of admissions revenue and $57 thousand of concession revenues. Other revenues of $8.9 million for the three months ended June 30, 2020 primarily included the amortization of deferred NCM screen advertising advances (see Note 9). Please see below for a summary of our performance for the three months ended June 30, 2019.

|  | U.S. Operating Segment 2019 | International Operating Segment 2019 | Consolidated 2019 |
| --- | ---: | ---: | ---: |
| Admissions revenues (1) | $407.0 | $114.1 | $521.1 |
| Concession revenues (1) | $274.9 | $70.4 | $345.3 |
| Other revenues (1)(2) | $61.1 | $30.3 | $91.4 |
| Total revenues (1)(2) | $743.0 | $214.8 | $957.8 |
| Attendance (1) | 50.1 | 30.1 | 80.2 |
| Average ticket price (1) | $8.12 | $3.79 | $6.50 |
| Concession revenues per patron (1) | $5.49 | $2.34 | $4.31 |

(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.

*Cost of Operations.* The table below summarizes our theatre operating costs (in millions) by reportable operating segment for the three months ended June 30, 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 | $0.2 | $237.6 | $0.2 | $57.1 | $0.4 | $0.4 | $294.7 |
| Concession supplies | $1.5 | $47.0 | $0.9 | $15.7 | $1.0 | $2.4 | $62.7 |
| Salaries and wages | $3.4 | $87.4 | $5.4 | $21.5 | $6.8 | $8.8 | $108.9 |
| Facility lease expense | $59.8 | $64.7 | $5.4 | $24.8 | $6.7 | $65.2 | $89.5 |
| Utilities and other | $28.8 | $89.3 | $6.1 | $33.4 | $7.7 | $34.9 | $122.7 |

(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 $0.2 million for the second quarter of 2020, which included film rental on the library content shown in five domestic theatres opened in June as well as adjustments to film rental accruals for film product shown during the first quarter of 2020. Film rentals and advertising costs were $237.6 million, or 58.4% of admissions revenues, for the second quarter of 2019. Concession supplies expenses of $1.5 million for the second quarter of 2020 included the impact of the disposal of expired product as a result of the temporary closure of our theatres. Concession supplies expense was $47.0 million, or 17.1% of concession revenues, for the second quarter of 2019.

Salaries and wages decreased to $3.4 million for the second quarter of 2020 as most of our theatres were temporarily closed during this time. Facility lease expense decreased to $59.8 million for the second quarter of 2020 from $64.7 million for the second quarter of 2019 primarily due to the temporary closure of our theatres and the resulting decline in percentage rent expense and common area maintenance. Utilities and other costs decreased to $28.8 million for the second quarter of 2020 from $89.3 million for the second quarter of 2019, as many of these costs are variable in nature and were impacted by the temporary closure of our domestic theatres.

- *International.* All of our international theatres were temporarily closed during the second quarter of 2020. Film rental and advertising costs of $0.2 million for the second quarter of 2020 were primarily advertising expenses incurred during the period. Film rentals and advertising costs were $57.1 million, or 50.0% of admissions revenues, for the second quarter of 2019. Concessions supplies expenses of $0.9 million for the second quarter of 2020 was a result of the disposal of expired product as a result of the temporary closure of our theatres. Concession supplies expense was $15.7 million, or 22.3% of concession revenues, for the second quarter of 2019.

Salaries and wages decreased to $5.4 million ($6.8 million in constant currency) for the second quarter of 2020 compared to $21.5 million for the second quarter of 2019. The decrease was due to the temporary closure of all of our international theatres on March 18, 2020. Facility lease expense decreased to $5.4 million ($6.7 million in constant currency) for the second quarter of 2020 compared to $24.8 million for the second 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 and rent-free periods allowed in certain international locations due to mall closures. Utilities and other costs decreased to $6.1 million ($7.7 million in constant currency) for the second quarter of 2020 compared to $33.4 million for the second quarter of 2019, as many of these costs are variable in nature and were impacted by the temporary closure of our theatres.

*General and Administrative Expenses.* General and administrative expenses decreased to $28.0 million for the second quarter of 2020 from $44.3 million for the second quarter of 2019. The decrease was primarily due to temporary salary reductions and the furlough of a portion of our corporate office staff as a result of the temporary theatre closures (see Note 2) and the impact of changes in foreign currency exchange rates in certain countries in which we operate.

*Depreciation and Amortization.* Depreciation and amortization expense decreased to $63.5 million during the second quarter of 2020 compared to $64.5 million during the second quarter of 2019.

*Impairment of Long-Lived Assets.* We recorded no asset impairment charges on assets held and used during the second quarter of 2020 compared to $12.5 million during the second quarter of 2019. The long-lived asset impairment charges recorded during the second quarter of 2019 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. Impairment charges for the second quarter of 2019 impacted 4 countries. See Note 13 to our condensed consolidated financial statements.

*Restructuring costs.* We recorded restructuring costs of $19.5 million during the second quarter of 2020 related to the 2020 Restructuring Plan implemented during the second quarter of 2020. See Note 2 to our condensed consolidated financial statements for further discussion.

*Loss on Disposal of Assets and Other.* We recorded a loss on disposal of assets and other of $0.4 million during the second quarter of 2020 compared to $1.8 million during the second quarter of 2019. Activity for the second 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 $28.4 million during the second quarter of 2020 compared to $24.9 million during the second quarter of 2019. The increase was primarily due to the issuance of 8.750% senior secured notes on April 20, 2020 and other borrowings during the second quarter of 2020 as discussed in Note 7 to our condensed consolidated financial statements.

*Amortization of Accumulated Losses for Amended Swap Agreements.* We recorded amortization of the accumulated losses associated with our amended and extended interest rate swap agreements of $2.7 million during the second quarter of 2020. See further discussion at Note 7 to our condensed consolidated financial statements.

*Distributions from NCM.* We recorded distributions from NCM of $0.7 million during the second quarter of 2020 compared to $2.1 million recorded during the second 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 second quarter of 2020 compared to $4.7 million recorded during the second 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 (Loss) of Affiliates.* We recorded equity in loss of affiliates of $(20.1) million during the second quarter of 2020 compared to equity in income of affiliates of $8.4 million during the second 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 $(98.1) million was recorded for the second quarter of 2020 compared to income tax expense of $38.2 million for the second quarter of 2019. The effective tax rate was approximately 36.49% for the second quarter of 2020 compared to 27.26% for the second quarter of 2019. The effective tax rate for the quarter ended June 30, 2020 was favorably impacted by the projected carryback of 2020 federal tax losses to tax years that had a 35% federal tax rate. It was also favorably impacted by the projected state net operating loss carryforwards. 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.

### Six months ended June 30, 2020 versus June 30, 2019

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. We opened five domestic theatres in late June to test our new safety protocols, showing library content. We expanded this test-and-learn strategy to ten additional theatres on July 31, 2020 and plan to commence a phased reopening of additional theatres beginning in August, subject to government mandates and release date changes. We are still evaluating the timing of reopening of our theatres in Latin America.

Total revenues decreased $1,119.9 million to $552.6 million for the six months ended June 30, 2020 (“2020 period”) from $1,672.5 million for the six months ended June 30, 2019 (“2019 period”). The table below, presented by reportable operating segment, summarizes our revenue performance and certain key performance indicators for the six months ended June 30, 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 | $715.8 | (67.5)% | $60.2 | $200.8 | (70.0)% | $71.1 | (64.6)% | $292.5 | $916.6 | (68.1)% |
| Concession revenues (1) | $152.8 | $474.3 | (67.8)% | $37.7 | $122.3 | (69.2)% | $43.8 | (64.2)% | $190.5 | $596.6 | (68.1)% |
| Other revenues (1)(2) | $50.4 | $107.7 | (53.2)% | $19.2 | $51.6 | (62.8)% | $23.6 | (54.3)% | $69.6 | $159.3 | (56.3)% |
| Total revenues (1)(2) | $435.5 | $1,297.8 | (66.4)% | $117.1 | $374.7 | (68.7)% | $138.5 | (63.0)% | $552.6 | $1,672.5 | (67.0)% |
| Attendance (1) | 27.9 | 88.8 | (68.6)% | 17.9 | 53.7 | (66.7)% |  |  | 45.8 | 142.5 | (67.9)% |
| Average ticket price (1) | $8.33 | $8.06 | 3.3% | $3.36 | $3.74 | (10.2)% | $3.97 | 6.1% | $6.39 | $6.43 | (0.6)% |
| Concession revenues per patron (1) | $5.48 | $5.34 | 2.6% | $2.11 | $2.28 | (7.5)% | $2.45 | 7.5% | $4.16 | $4.19 | (0.7)% |

(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 $483.5 million primarily due to a 68.6% decrease in attendance, partially offset by a 3.3% 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 $321.5 million primarily due to the 68.6% decrease in attendance, partially offset by a 2.6% 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 $57.3 million as a result of the temporary closure of theatres.
- *International.* Admissions revenues decreased $140.6 million as reported ($129.7 million in constant currency). Average ticket price decreased 10.2% as reported (increased 6.1% in constant currency). Concession revenues decreased $84.6 million as reported ($78.5 million in constant currency). Concession revenues per patron decreased by 7.5% as reported (increased 7.5% 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 six months ended June 30, 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 | $128.2 | $406.8 | $28.8 | $98.0 | $34.3 | $157.0 | $504.8 |
| Concession supplies | $27.1 | $79.0 | $10.1 | $26.8 | $11.9 | $37.2 | $105.8 |
| Salaries and wages | $74.6 | $164.2 | $21.8 | $40.8 | $26.4 | $96.4 | $205.0 |
| Facility lease expense | $125.2 | $129.6 | $22.2 | $45.5 | $26.0 | $147.4 | $175.1 |
| Utilities and other | $103.8 | $169.1 | $31.6 | $64.2 | $37.9 | $135.4 | $233.3 |

(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 $128.2 million, or 55.2% of admissions revenues, for the 2020 period compared to $406.8 million, or 56.8% of admissions revenues, for the 2019 period. The decrease in the film rental and advertising rate was a result of typical summer content not being released during the 2020 period as a result of the temporary closure of our theatres on March 17, 2020. Concession supplies expense was $27.1 million, or 17.7% of concession revenues, for the 2020 period compared to $79.0 million, or 16.7% of concession revenues, for the 2019 period. The increase in the concession supplies rate was primarily due to the impact of the disposal of perishable food and expired product as a result of the temporary closure of our theatres.

Salaries and wages decreased to $74.6 million for the 2020 period from $164.2 million for the 2019 period primarily due to the temporary closure of all of our U.S. theatres on March 17, 2020 and the resulting temporary reduction in headcount. Facility lease expense decreased to $125.2 million for the 2020 period from $129.6 million for the 2019 period primarily due to declines in percentage rent expense. Utilities and other costs decreased to $103.8 million for the 2020 period from $169.1 million for the 2019 period due to the temporary closure of all of our U.S. theatres on March 17, 2020, as many of these costs are variable in nature.

- *International.* Film rentals and advertising costs were $28.8 million ($34.3 million in constant currency), or 47.8% of admissions revenues, for the 2020 period compared to $98.0 million, or 48.8% of admissions revenues, for the 2019 period. Concession supplies expense was $10.1 million ($11.9 million in constant currency), or 26.8% of concession revenues, for the 2020 period compared to $26.8 million, or 21.9% of concession revenues, for the 2019 period. The increase in the concession supplies rate was primarily due to the impact of the disposal of perishable food and expired product as a result of temporarily closing our theatres.

Salaries and wages decreased to $21.8 million ($26.4 million in constant currency) for the 2020 period compared to $40.8 million for the 2019 period. The decrease was due to the temporary reduction in headcount due to the temporary closure of all of our international theatres on March 18, 2020. Facility lease expense decreased to $22.2 million ($26.0 million in constant currency) for 2020 period compared to $45.5 million for the 2019 period. The decrease was due to lower percentage rent due to the temporary closure of all of our international theatres on March 18, 2020 and rent-free periods allowed in certain international locations due to mall closures. Utilities and other costs decreased to $31.6 million ($37.9 million in constant currency) for the 2020 period compared to $64.2 million for the 2019 period due to the temporary closure of all of our international theatres on March 18, 2020, as many of these costs are variable in nature.

*General and Administrative Expenses.* General and administrative expenses decreased to $69.1 million for the 2020 period from $82.3 million for the 2019 period. The decrease was primarily due to temporary salary reductions and the furlough of a portion of our corporate office staff as a result of the temporary theatre closures (see Note 2) and the impact of changes in foreign currency exchange rates in certain countries in which we operate.

*Depreciation and Amortization.* Depreciation and amortization expense decreased to $128.8 million during the 2020 period compared to $129.0 million during the 2019 period.

*Impairment of Long-Lived Assets.* We recorded asset impairment charges on assets held and used of $16.6 million during the 2020 period compared to $18.1 million during the 2019 *period*. 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 2020 period were also impacted by the temporary closure of our theatres and the associated assumptions related to estimated future cash flows. Impairment charges for the 2020 period impacted four countries and impairment charges for the 2019 period impacted seven countries. See Note 13 to our condensed consolidated financial statements.

*Restructuring costs.* We recorded restructuring costs of $19.5 million during the 2020 period related to the 2020 Restructuring Plan implemented during the 2020 period. See Note 2 to our condensed consolidated financial statements for further discussion.

*Loss on Disposal of Assets and Other.* We recorded a loss on disposal of assets and other of $2.3 million during 2020 period compared to $5.6 million during the 2019 period. Activity for the 2020 and 2019 periods were primarily due to the retirement of assets related to theatre remodels.

*Interest Expense.* Interest costs incurred, including amortization of accumulated losses associated with debt issue costs, were $53.0 million during the 2020 period compared to $50.1 million during the 2019 period. The increase was primarily due to the issuance of 8.750% senior secured notes on April 20, 2020 and additional borrowings during the second quarter of 2020 as discussed in Note 7 to our condensed consolidated financial statements.

*Amortization of Accumulated Losses for Amended Swap Agreements.* We recorded amortization of our amended and extended interest rate swap agreements of $2.7 million during the 2020 period. See further discussion at Note 7 to our condensed consolidated financial statements.

*Distributions from NCM.* We recorded distributions from NCM of $5.9 million during the 2020 period compared to $6.7 million recorded during the 2019 period, 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 $11.8 million for the 2020 period compared to $9.5 million recorded during the 2019 period, 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 (Loss) of Affiliates.* We recorded equity in loss of affiliates of $(11.6) million during the 2020 period compared to equity in income of affiliates of $18.8 million during the 2019 period. See Notes 9 and 10 to our condensed consolidated financial statements for information about our equity investments.

*Income Taxes.* An income tax benefit of $(101.3) million was recorded for the 2020 period compared to income tax expense of $50.1 million recorded for the 2019 period. The effective tax rate was approximately 30.5% for the 2020 period compared to 27.1% for the 2019 period. The effective tax rate for the six months ended June 30, 2020 was favorably impacted by the projected carryback of 2020 federal tax losses to tax years that had a 35% federal tax rate. It was also favorably impacted by the projected state net operating loss carryforwards. The effective tax rate was unfavorably impacted by $14.2 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 $8.9 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 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 $(153.9) million for the six months ended June 30, 2020 compared to cash provided by operating activities of $303.6 million for the six months ended June 30, 2019. The decrease in cash provided by operating activities was primarily a result of the temporary closure of all of our theatres effective March 18, 2020, the impact of our net loss on current tax accounts and the level and timing of payments to landlords and other vendors during each respective period. As discussed in Note 4 of our condensed consolidated financial statements, we negotiated the deferral of rent and other lease-related payments for the second quarter of 2020 with many of our landlords, resulting in approximately $42.7 million in deferred lease payments. We will begin paying a portion of these deferred lease payments during the second half of 2020; however, a majority of the repayments will be made during 2021.

#### 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 $(46.8) million for the six months ended June 30, 2020 compared to $(125.2) million for the six months ended June 30, 2019. The decrease in cash used for investing activities was primarily due to the suspension of non-essential capital expenditures in response to the temporary closure of our theatres.

Capital expenditures for the six months ended June 30, 2020 and 2019 were as follows (in millions):

| Period | New Theatres | Existing Theatres | Total |
| --- | ---: | ---: | ---: |
| Six Months Ended June 30, 2020 | $9.8 | $37.2 | $47.0 |
| Six Months Ended June 30, 2019 | $29.4 | $85.8 | $115.2 |

We operated 534 theatres with 5,977 screens worldwide as of June 30, 2020. Theatres and screens acquired, built and closed during the three months ended June 30, 2020 were as follows:

| U.S (42 states) | January 1, 2020 | Built | Closed | June 30, 2020 |
| --- | ---: | ---: | ---: | ---: |
| Theatres | 345 | 1 | 14 | 332 |
| Screens | 4,645 | 12 | 135 | 4,522 |
| International (15 countries) |  |  |  |  |
| Theatres | 209 | 1 | 8 | 202 |
| Screens | 1,487 | 14 | 46 | 1,455 |
| Worldwide |  |  |  |  |
| Theatres | 554 | 2 | 22 | 534 |
| Screens | 6,132 | 26 | 181 | 5,977 |

As of June 30, 2020, we had the following signed commitments (costs in millions):

| Remainder of 2020 | Theatres | Screens | Estimated Cost (1) |
| --- | ---: | ---: | ---: |
| U.S. | 2 | 16 | $13.1 |
| International | 2 | 18 | $5.9 |
| Total | 4 | 34 |  |
| Subsequent to 2020 |  |  |  |
| U.S. | 10 | 126 | $90.4 |
| International | 8 | 63 | $32.7 |
| Total | 18 | 189 |  |
| Total commitments at June 30, 2020 | 22 | 223 | $142.1 |

(1) We expect approximately $23.8 million, $61.2 million, $53.0 million and $4.1 million to be paid during the remainder of 2020, during 2021, 2022 and 2023, respectively. The timing of payments is subject to change depending on project or other related delays.

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 $290.7 million for the six months ended June 30, 2020 compared to cash used for financing activities of ($93.6) million for the six months ended June 30, 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 and the issuance of 8.750% Senior Secured notes on April 20, 2020. In addition, we suspended our dividend due to the temporary closure of our theatres.

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. 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 June 30, 2020 (in millions):

|  |  |
| --- | ---: |
| Cinemark USA, Inc. term loan | $643.0 |
| 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 |
| Cinemark USA, Inc. 8.750% senior secured notes due 2025 | 250.0 |
| Other debt | 6.1 |
| Total long-term debt | $2,152.9 |
| Less current portion | 7.3 |
| Subtotal long-term debt, less current portion | $2,145.6 |
| Less: Debt discounts and debt issuance costs, net of accumulated amortization | 28.3 |
| Long-term debt, less current portion, net of debt issuance costs | $2,117.3 |

As of June 30, 2020, approximately $1.2 million was available for borrowing under the revolving line of credit.

#### Contractual Obligations

In April 2020, Cinemark USA, Inc. issued $250.0 million 8.750% senior secured notes. Additionally, in May and June 2020, our international subsidiaries in Peru and Colombia borrowed $6.1 million under three separate loan agreements. Included below is an updated summary of long-term debt obligations and related estimated scheduled interest payment obligations as of June 30, 2020, reflecting these additional obligations.

*(in millions)*

| Contractual Obligations | Payments Due by Period Total | Less Than One Year | 1 - 3 Years | 3 - 5 Years | After 5 Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Long-term debt (1) | $2,152.9 | $7.3 | $1,272.4 | $873.2 | $— |
| Scheduled interest payments on long-term debt (2) | $365.3 | $103.0 | $193.2 | $69.1 | $— |

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

(2) Amounts include scheduled interest payments on fixed rate and variable rate debt agreements. Estimates for the variable rate interest payments were based on interest rates in effect on June 30, 2020. The average interest rates in effect on our fixed rate and variable rate debt are 5.0% and 2.0%, respectively, as of June 30, 2020.

There have been no other 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 June 30, 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 June 30, 2020, the actual ratio was approximately 1.9 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 June 30, 2020, Cinemark USA, Inc. could have distributed up to approximately $3,081 million (the “Applicable Amount”) 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.

On April 17, 2020, in conjunction with the issuance of the 8.750% Secured Notes discussed below, 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. The waiver is subject to certain liquidity thresholds, restrictions on investments and the use of the Applicable Amount.

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 June 30, 2020, there was $643.0 million outstanding under the term loan, $98.8 million of borrowings were outstanding under the $100.0 million revolving line of credit and approximately $1.2 million was available for borrowing under the revolving credit line. On April 3, 2020, a letter of credit was cancelled and was no longer outstanding. The average interest rate on outstanding term loan borrowings under the Credit Agreement at June 30, 2020 was approximately 3.4% per annum, after giving effect to the interest rate swap agreements discussed above. The average interest rate on the outstanding revolver borrowings was 1.8% at June 30, 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 June 30, 2020, Cinemark USA, Inc. could have distributed up to approximately $3,198 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 June 30, 2020 was approximately 3.2 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 June 30, 2020, Cinemark USA, Inc. could have distributed up to approximately $3,191 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 June 30, 2020 was approximately 3.2 to 1.

#### 8.750% Secured Notes

On April 20, 2020, the Company issued $250,000 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 $50,000, 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 $50,000, 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 the Company’s subsidiaries that guarantee, assume or in any other manner become liable with respect to any of the Company’s or its guarantors’ other debt. If the Company cannot make payments on the 8.750% Secured Notes when they are due, the Company’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 8.750% Secured Notes.

The 8.750% Secured Notes and the guarantees will be the Company’s and its guarantors’ senior obligations and they will:

- rank effectively senior in right of payment to the Company’s and its 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 the Company’s and its 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 the Company’s and its guarantors’ existing and future senior debt, including debt under the Credit Agreement and the existing senior notes;
- rank senior in right of payment to the Company’s and its guarantors’ future subordinated debt; and
- be structurally subordinated to all existing and future debt and other liabilities of the Company’s 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. The required minimum coverage ratio is 2.0 to 1 and our actual ratio as of June 30, 2020 was approximately 3.1 to 1.

#### Additional Borrowings of International Subsidiaries

During May 2020, our subsidiary in Peru borrowed the USD equivalent of approximately $2.8 million under a 1% loan. Principal payments are due monthly beginning in July 2021 through June 2023. Accrued and unpaid interest is to be paid when principal payments are due. We are subject to certain customary negative covenants under the loan.

During May and June 2020, our subsidiary in Colombia borrowed the USD equivalent of approximately $3.3 million under two variable rate loans. Aggregate principal payments are due monthly beginning in December 2020 through May 2023. Accrued and unpaid interest is to be paid when principal payments are due. The variable interest rates on the loans ranged from approximately 7.5% to 8.5% as of June 30, 2020. We are subject to certain customary negative covenants under the loans.

#### Covenant Compliance

As of June 30, 2020, we believe we were in full compliance with all agreements, including all related covenants, governing our outstanding debt.

## Market risk

As filed, 2,040 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 June 30, 2020, we had an aggregate of approximately $147.9 million of variable rate debt outstanding. Based on the interest rates in effect on the variable rate debt outstanding at June 30, 2020, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $1.5 million.

The table below provides information about our fixed rate and variable rate long-term debt agreements as of June 30, 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 | $— | $— | $1,155.0 | $— | $850.0 | $— | $2,005.0 | $1,840.5 | 5.0% |
| Variable rate (1) | 7.3 | 9.3 | 108.1 | 6.6 | 16.6 | — | 147.9 | 144.0 | 2.0% |
| Total debt | $7.3 | $9.3 | $1,263.1 | $6.6 | $866.6 | $— | $2,152.9 | $1,984.5 |  |

#### 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, 1,525 characters.

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

As of June 30, 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 June 30, 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 June 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 7,516 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 below, including the documents incorporated by reference therein.

***The COVID-19 pandemic, which has caused us to temporarily close nearly all of our theatres, has had and continues to have adverse effects on our business, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness, including the notes offered hereby, some of which may be significant.***

The outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and our 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 has been, and continues to be, significantly impacted by protective actions taken by governmental authorities to control the spread of the pandemic. To comply with the government mandates at the initial outbreak of the COVID-19 pandemic, we temporarily closed all our theatres in the U.S. and Latin America effective March 17, 2020 and March 18, 2020, respectively. In conjunction with the temporary closure of our theatres in March 2020, we implemented temporary personnel and salary reductions in the U.S., halted non-essential operating and capital expenditures, suspended our quarterly dividend, negotiated modified timing of contractual payments with landlords and other major suppliers, and pursued similar actions in international markets to the extent permitted by local laws. While we have reopened five theatres effective June 19, 2020, our re-opening plans for the remainder of the circuit continues to evolve given the uncertainty with respect to continuing government-mandated closures and the lack of new film content from the film studios. Accordingly, the outbreak of the COVID-19 pandemic continues to have adverse effects on our business. We cannot predict when the effects of the COVID-19 pandemic will subside, our theatres will be allowed to open or our business will return to normal levels after reopening. The longer and more severe the pandemic, including repeat or cyclical outbreaks beyond the one we are currently experiencing, the more severe the adverse effects will be on our business, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness, including the notes offered hereby.

Even when we reopen our theatres, governmental restrictions such as limitations on capacity and food and beverage sales could continue to have significant impact on our business, results of operations, liquidity, cash flows and financial conditions. Additionally, we cannot guarantee we will recover as rapidly as other industries when the COVID-19 pandemic subsides. For example, once federal, state and local government restrictions are lifted, it is unclear how quickly patrons will return to our theatres, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, among other factors. Even once theatres are reopened, a single case of COVID-19 in a theatre could result in additional costs and further closures. If we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate, we could suffer damage to our reputation, which could adversely affect our business. Furthermore, the effects of the pandemic on our business could be long-lasting and could continue to have adverse effects on our business, results of operations, liquidity, cash flows and financial condition, some of which may be significant, and may adversely impact our ability to operate our business after our temporary closure ends on the same terms as we conducted business prior to the pandemic. Significant impacts on our business caused by the COVID-19 pandemic may include, among others:

- lack of availability of new films in the short or long term, including as a result of (i) major film distributors postponing film content indefinitely into the future or releasing scheduled films internationally or on alternative channels or (ii) disruptions of film production;
- decreased attendance at our theatres after they reopen, including due to (i) continued safety and health concerns or (ii) a change in consumer behavior in favor of alternative forms of entertainment;
- our inability to negotiate favorable rent payment terms with our landlords;
- unavailability of employees and/or their inability or unwillingness to work under newly implemented work environment protocols;
- increased risks related to employee matters, including increased employment litigation and claims relating to terminations or furloughs caused by theatre closures;
- reductions and delays associated with planned operating and capital expenditures;
- potential impairment charges;
- our inability to generate significant cash flow from operations if our theatres continue to operate at significantly lower than historical levels, which could lead to a substantial increase in indebtedness and negatively impact our ability to comply with the financial covenants, if applicable, in our debt agreements;
- our inability to access lending, capital markets and other sources of liquidity, if needed, on reasonable terms, or at all, or obtain amendments, extensions and waivers;
- our inability to effectively meet our short- and long-term obligations; and
- our inability to service our existing and future indebtedness, including the notes offered hereby.

The outbreak of COVID-19 has also significantly increased economic and demand uncertainty. It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, and it is possible that it could cause a global recession.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section of the Form 10-K as updated by the Current Report on Form 8-K filed on April 13, 2020, including but not limited to those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

While we have elected to take advantage of certain tax-related benefits available under the CARES Act and continue to review and evaluate other available potential benefits under the CARES Act as well as any other current and future legislation enacted into law, we cannot guarantee that we will be eligible for, or be successful in, obtaining any relief under any such law. If we receive certain government disaster relief assistance, we may be subject to certain requirements imposed by the government on the recipients of the aid including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt, incurrence of additional indebtedness and other similar restrictions until the aid is repaid or redeemed in full. However, we cannot predict the manner in which such benefits will be allocated or administered and cannot predict whether we will be able to access such benefits in a timely manner or at all.

Filed Aug 4, 2020.
Source: SEC EDGAR, the filing index for accession 0001564590-20-035881. Last ingested by Listed: Nov 3, 2026, 08:34 ET. No prices; not investment advice.