0001564590-18-026714.txt : 20181105 0001564590-18-026714.hdr.sgml : 20181105 20181105131032 ACCESSION NUMBER: 0001564590-18-026714 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 95 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181105 DATE AS OF CHANGE: 20181105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINEMARK USA INC /TX CENTRAL INDEX KEY: 0000885975 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 752206284 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-47040 FILM NUMBER: 181159494 BUSINESS ADDRESS: STREET 1: 3900 DALLAS PARKWAY SUITE 500 CITY: PLANO STATE: TX ZIP: 75093 BUSINESS PHONE: 972-665-1000 MAIL ADDRESS: STREET 1: 3900 DALLAS PARKWAY SUITE 500 CITY: PLANO STATE: TX ZIP: 75093 10-Q 1 ck0000885975-10q_20180930.htm 10-Q ck0000885975-10q_20180930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

Commission File Number: 33-47040

CINEMARK USA, INC.

(Exact name of registrant as specified in its charter)

 

Texas

 

75-2206284

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3900 Dallas Parkway

 

 

Suite 500

 

 

Plano, Texas

 

75093

(Address of principal executive offices)

 

(Zip Code)

Registrant's telephone number, including area code:  (972) 665-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files).    Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No 

As of October 31, 2018, 1,500 shares of Class A common stock and 182,648 shares of Class B common stock were outstanding.  

 

 

 


 

CINEMARK USA, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I.     FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 (unaudited)

 

4

 

 

 

 

 

 

 

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

 

5

 

 

 

 

 

 

 

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

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

38

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

49

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

49

 

 

 

 

 

PART II.     OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

50

 

 

 

 

 

 

Item 1A.

Risk Factors

 

50

 

 

 

 

 

 

Item 5

Other Information

 

50

 

 

 

 

 

 

Item 6.

Exhibits

 

55

 

 

 

 

 

SIGNATURES

 

56

 

2


 

Cautionary Statement Regarding Forward-Looking Statements

Certain matters within this Quarterly Report on Form 10Q include “forward–looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The “forward-looking statements” may include our current expectations, assumptions, estimates and projections about our business and our industry. They may include statements relating to future revenues, expenses and profitability, the future development and expected growth of our business, projected capital expenditures, attendance at movies generally or in any of the markets in which we operate, the number or diversity of popular movies released and our ability to successfully license and exhibit popular films, national and international growth in our industry, competition from other exhibitors and alternative forms of entertainment and determinations in lawsuits in which we are defendants.  Forward-looking statements can be identified by the use of words such as “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.  For a description of the risk factors, please review the “Risk Factors” section or other sections in the Company’s Annual Report on Form 10-K filed March 2, 2018 and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by such risk factors. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

3


 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data, unaudited)

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

366,787

 

 

$

522,415

 

Inventories

 

 

16,319

 

 

 

17,507

 

Accounts receivable

 

 

76,813

 

 

 

89,248

 

Current income tax receivable

 

 

3,977

 

 

 

11,730

 

Prepaid expenses and other

 

 

21,476

 

 

 

16,536

 

Accounts receivable from parent

 

 

19,314

 

 

 

14,581

 

Total current assets

 

 

504,686

 

 

 

672,017

 

 

 

 

 

 

 

 

 

 

Theatre properties and equipment

 

 

3,352,145

 

 

 

3,328,589

 

Less: accumulated depreciation and amortization

 

 

1,531,658

 

 

 

1,500,535

 

Theatre properties and equipment, net

 

 

1,820,487

 

 

 

1,828,054

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Goodwill

 

 

1,276,800

 

 

 

1,284,079

 

Intangible assets - net

 

 

330,938

 

 

 

336,761

 

Investment in NCM

 

 

279,456

 

 

 

200,550

 

Investments in and advances to affiliates

 

 

153,101

 

 

 

120,045

 

Long-term deferred tax asset

 

 

4,011

 

 

 

4,067

 

Deferred charges and other assets - net

 

 

47,386

 

 

 

39,767

 

Total other assets

 

 

2,091,692

 

 

 

1,985,269

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

4,416,865

 

 

$

4,485,340

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

7,984

 

 

$

7,099

 

Current portion of capital lease obligations

 

 

26,383

 

 

 

25,511

 

Current income tax payable

 

 

8,708

 

 

 

5,509

 

Current liability for uncertain tax positions

 

 

219

 

 

 

11,873

 

Accounts payable and accrued expenses

 

 

347,625

 

 

 

418,294

 

Total current liabilities

 

 

390,919

 

 

 

468,286

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

 

1,774,456

 

 

 

1,780,381

 

Capital lease obligations, less current portion

 

 

228,162

 

 

 

251,151

 

Long-term deferred tax liability

 

 

142,281

 

 

 

121,787

 

Long-term liability for uncertain tax positions

 

 

13,169

 

 

 

8,358

 

Deferred lease expenses

 

 

39,555

 

 

 

40,929

 

Deferred revenue - NCM

 

 

291,307

 

 

 

351,706

 

Other long-term liabilities

 

 

47,024

 

 

 

41,247

 

Total long-term liabilities

 

 

2,535,954

 

 

 

2,595,559

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (see Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Cinemark USA, Inc.'s stockholder's equity:

 

 

 

 

 

 

 

 

Class A common stock, $0.01 par value: 10,000,000 shares authorized, 1,500 shares issued and outstanding

 

 

 

 

 

 

Class B common stock, no par value: 1,000,000 shares authorized, 239,893 shares issued and 182,648 shares outstanding

 

 

49,543

 

 

 

49,543

 

Treasury stock, 57,245 Class B shares at cost

 

 

(24,233

)

 

 

(24,233

)

Additional paid-in-capital

 

 

1,274,181

 

 

 

1,264,505

 

Retained earnings

 

 

497,896

 

 

 

373,069

 

Accumulated other comprehensive loss

 

 

(320,166

)

 

 

(253,282

)

Total Cinemark USA, Inc.'s stockholder's equity

 

 

1,477,221

 

 

 

1,409,602

 

Noncontrolling interests

 

 

12,771

 

 

 

11,893

 

Total equity

 

 

1,489,992

 

 

 

1,421,495

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

4,416,865

 

 

$

4,485,340

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4


 

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data, unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

$

427,616

 

 

$

425,128

 

 

$

1,389,110

 

 

$

1,351,477

 

Concession

 

 

264,165

 

 

 

247,027

 

 

 

831,243

 

 

 

777,573

 

Other

 

 

62,454

 

 

 

38,593

 

 

 

202,906

 

 

 

112,503

 

Total revenues

 

 

754,235

 

 

 

710,748

 

 

 

2,423,259

 

 

 

2,241,553

 

Cost of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Film rentals and advertising

 

 

230,121

 

 

 

226,229

 

 

 

758,242

 

 

 

725,603

 

Concession supplies

 

 

42,720

 

 

 

40,178

 

 

 

134,577

 

 

 

124,117

 

Salaries and wages

 

 

92,495

 

 

 

87,305

 

 

 

285,997

 

 

 

261,318

 

Facility lease expense

 

 

80,592

 

 

 

81,919

 

 

 

243,873

 

 

 

248,569

 

Utilities and other

 

 

112,832

 

 

 

92,341

 

 

 

337,866

 

 

 

271,751

 

General and administrative expenses

 

 

37,745

 

 

 

36,512

 

 

 

121,769

 

 

 

111,179

 

Depreciation and amortization

 

 

64,971

 

 

 

58,052

 

 

 

193,656

 

 

 

174,545

 

Impairment of long-lived assets

 

 

1,641

 

 

 

5,026

 

 

 

5,020

 

 

 

9,600

 

Loss on disposal of assets and other

 

 

7,826

 

 

 

8,576

 

 

 

28,666

 

 

 

9,464

 

Total cost of operations

 

 

670,943

 

 

 

636,138

 

 

 

2,109,666

 

 

 

1,936,146

 

Operating income

 

 

83,292

 

 

 

74,610

 

 

 

313,593

 

 

 

305,407

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(27,144

)

 

 

(26,317

)

 

 

(82,725

)

 

 

(79,208

)

Loss on debt amendments and refinancing

 

 

 

 

 

-

 

 

 

(1,484

)

 

 

(246

)

Interest income

 

 

2,754

 

 

 

1,678

 

 

 

7,847

 

 

 

4,391

 

Foreign currency exchange gain (loss)

 

 

(3,126

)

 

 

584

 

 

 

(6,947

)

 

 

2,018

 

Distributions from NCM

 

 

2,386

 

 

 

2,144

 

 

 

12,168

 

 

 

11,704

 

Interest expense - NCM

 

 

(4,983

)

 

 

 

 

 

(14,875

)

 

 

 

Equity in income of affiliates

 

 

14,158

 

 

 

10,902

 

 

 

29,208

 

 

 

26,767

 

Total other expense

 

 

(15,955

)

 

 

(11,009

)

 

 

(56,808

)

 

 

(34,574

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

67,337

 

 

 

63,601

 

 

 

256,785

 

 

 

270,833

 

Income taxes

 

 

16,301

 

 

 

24,797

 

 

 

60,056

 

 

 

99,167

 

Net income

 

$

51,036

 

 

$

38,804

 

 

$

196,729

 

 

$

171,666

 

Less:  Net income attributable to noncontrolling interests

 

 

393

 

 

 

401

 

 

 

878

 

 

 

1,438

 

Net income attributable to Cinemark USA, Inc.

 

$

50,643

 

 

$

38,403

 

 

$

195,851

 

 

$

170,228

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

5


 

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

51,036

 

 

$

38,804

 

 

$

196,729

 

 

$

171,666

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) in equity method

   investments

 

 

(63

)

 

 

(11

)

 

 

(43

)

 

 

92

 

Foreign currency translation adjustments

 

 

(10,797

)

 

 

9,085

 

 

 

(66,841

)

 

 

5,578

 

Total other comprehensive income (loss), net of tax

 

 

(10,860

)

 

 

9,074

 

 

 

(66,884

)

 

 

5,670

 

Total comprehensive income, net of tax

 

 

40,176

 

 

 

47,878

 

 

 

129,845

 

 

 

177,336

 

Comprehensive income attributable to noncontrolling interests

 

 

(393

)

 

 

(401

)

 

 

(878

)

 

 

(1,438

)

Comprehensive income attributable to Cinemark USA, Inc.

 

$

39,783

 

 

$

47,477

 

 

$

128,967

 

 

$

175,898

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

6


 

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

196,729

 

 

$

171,666

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

191,236

 

 

 

173,378

 

Amortization of intangible and other assets and favorable/unfavorable leases

 

 

2,420

 

 

 

1,167

 

Amortization of long-term prepaid rents

 

 

1,814

 

 

 

1,540

 

Amortization of debt issue costs

 

 

4,236

 

 

 

4,619

 

Loss on debt amendments and refinancing

 

 

1,484

 

 

 

246

 

Amortization of deferred revenues, deferred lease incentives and other

 

 

(16,264

)

 

 

(12,037

)

Impairment of long-lived assets

 

 

5,020

 

 

 

9,600

 

Share based awards compensation expense

 

 

9,676

 

 

 

8,862

 

Loss on disposal of assets and other

 

 

28,666

 

 

 

9,464

 

Deferred lease expenses

 

 

(952

)

 

 

(1,019

)

Equity in income of affiliates

 

 

(29,208

)

 

 

(26,767

)

Deferred income tax expenses

 

 

9,096

 

 

 

9,541

 

Distributions from equity investees

 

 

21,041

 

 

 

17,321

 

Changes in assets and liabilities and other

 

 

(75,375

)

 

 

(56,399

)

Net cash provided by operating activities

 

 

349,619

 

 

 

311,182

 

Investing activities

 

 

 

 

 

 

 

 

Additions to theatre properties and equipment

 

 

(245,962

)

 

 

(262,730

)

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

 

 

(11,289

)

 

 

(41,000

)

Proceeds from sale of theatre properties and equipment and other

 

 

3,557

 

 

 

14,816

 

Acquisition of NCM common units

 

 

(78,393

)

 

 

 

Investment in joint ventures and other, net

 

 

(20,442

)

 

 

(1,178

)

Net cash used for investing activities

 

 

(352,529

)

 

 

(290,092

)

Financing activities

 

 

 

 

 

 

 

 

Dividends paid to parent

 

 

(111,550

)

 

 

(100,875

)

Payroll taxes paid as a result of stock withholdings

 

 

(2,905

)

 

 

(2,943

)

Repayments of long-term debt

 

 

(4,946

)

 

 

(2,855

)

Payment of debt issue costs

 

 

(5,103

)

 

 

(817

)

Fees paid related to debt amendments

 

 

(704

)

 

 

(246

)

Payments on capital leases

 

 

(18,778

)

 

 

(15,814

)

Proceeds from financing lease

 

 

 

 

 

10,200

 

Other

 

 

 

 

 

(620

)

Net cash used for financing activities

 

 

(143,986

)

 

 

(113,970

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(8,732

)

 

 

1,051

 

Decrease in cash and cash equivalents

 

 

(155,628

)

 

 

(91,829

)

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

522,415

 

 

 

561,138

 

End of period

 

$

366,787

 

 

$

469,309

 

Supplemental information (see Note 13)

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

7


CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

 

1.

The Company and Basis of Presentation

Cinemark USA, Inc. and subsidiaries (the “Company”), a wholly-owned subsidiary of Cinemark Holdings, Inc., operates in the motion picture exhibition industry, with theatres in the United States (“U.S.”), Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Curacao and Paraguay.

The accompanying condensed consolidated balance sheet as of December 31, 2017, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. Majority-owned subsidiaries that the Company has control of are consolidated while those affiliates of which the Company owns between 20% and 50% and does not control are accounted for under the equity method. Those affiliates of which the Company owns less than 20% are generally accounted for under the cost method, unless the Company is deemed to have the ability to exercise significant influence over the affiliate, in which case the Company would account for its investment under the equity method. The results of these subsidiaries and affiliates are included in the condensed consolidated financial statements effective with their formation or from their dates of acquisition. Intercompany balances and transactions are eliminated in consolidation.  

These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and the notes thereto for the year ended December 31, 2017, included in the Annual Report on Form 10-K filed March 2, 2018 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be achieved for the full year.

 

2.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC Topic 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.  ASC Topic 606 replaces most existing revenue recognition guidance in U.S. generally accepted accounting principles.  In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from the contracts with customers.  The Company adopted ASC Topic 606 effective January 1, 2018.  See Note 3 for further discussion.  

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”). The purpose of ASU 2016-02 is to provide financial statement users a better understanding of the amount, timing, and uncertainty of cash flows arising from leases. The adoption of ASU 2016-02 will result in the recognition of a right-of-use asset and a lease liability for most operating leases.  New disclosure requirements include qualitative and quantitative information about the amounts recorded in the financial statements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 requires a modified retrospective transition by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective with the option to elect certain practical expedients. Early adoption is permitted. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, (“ASU 2018-10”). The amendments in ASU 2018-10 provide clarification of narrow aspects of the guidance issued in ASU 2016-02.  In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements, (“ASU 2018-11”). The amendments in ASU 2018-11 provide an additional transition method to adopt the amendments in ASU 2016-02.  Under this new transition method, an entity initially applies the amendments in ASU 2016-02 at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  Under this transition method, an entity is not required to use the modified transition method described in ASU 2016-02.  The Company plans to adopt the additional transition method provided in ASU 2018-11.  The Company is currently evaluating the impact of ASU 2016-02, ASU 2018-10 and ASU 2018-11 on its condensed consolidated financial statements including, but not limited to, the impact of 1) the recognition of right-of-use assets and liabilities for operating leases, 2) the reassessment of certain leases previously evaluated under sale-leaseback accounting guidance and 3) the reclassification of certain rent related assets and liabilities as part of the right-of-use assets.  The most significant impact of these amendments on the Company’s financial statements will be the recognition of new right-of-use assets and lease liabilities related to leased theatres and certain leased equipment that are currently classified as operating leases.   The Company will adopt the amendments in ASU 2016-02, ASU 2018-10 and ASU 2018-11 in the first quarter of 2019.  

8


CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments – a consensus of the FASB Emerging Issues Task Force, (“ASU 2016-15”). The purpose of ASU 2016-15 is to reduce the diversity in practice regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year.  A retrospective transition method should be used in the application of the amendments within ASU 2016-15.  The Company adopted ASU 2016-15 effective January 1, 2018.  As a result of the adoption of ASU 2016-15, cash paid of $246 related to the June 2017 amendment of the Company’s senior secured credit facility was reclassified from operating activities to financing activities for the nine months ended September 30, 2017.  

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”).  The purpose of ASU 2018-13 is to improve the disclosures related to fair value measurements in the financial statements.  The improvements in ASU include the removal, modification and addition of certain disclosure requirements primarily related to Level 3 fair value measurements.  ASU 2016-18 is effective for fiscal years beginning after December 15, 2019, including interim periods within that year.  The amendments in ASU 2018-13 should be applied prospectively.  The Company does not expect ASU 2018-13 to have a significant impact on its condensed consolidated financial statements.

U.S. Tax Reform

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act made changes to the U.S. tax code, which included (1) reduced U.S. corporate tax rate from 35 percent to 21 percent, (2) generally eliminated U.S. federal income taxes on dividends from foreign subsidiaries, and (3) a one-time transition tax on certain undistributed earnings of foreign subsidiaries.  Under ASC 740, Income Taxes, reporting entities are required to recognize the effect(s) of the Act on current and deferred income taxes in the enactment period’s financial statements.  As of September 30, 2018, the amounts recorded for the Tax Act pertaining to the transition tax impact for 2017 are final, however, the transition tax impact for 2018 remains provisional. The amounts recorded for the re-measurement of net deferred taxes, and the Company’s reassessment of valuation allowances remain provisional. These estimates may be impacted by further analysis due to future clarification and guidance regarding earnings and profits computations, state tax conformity to federal tax changes, and potential tax planning options under consideration.

9


CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

3.

Revenue Recognition

Revenue Recognition Policy

The Company recognizes admissions and concession revenues when sales are made at the box office and concession stand, respectively.  Other revenues include screen advertising, transactional fees and other ancillary revenues such as vendor marketing promotions and meeting rentals and events.  The Company records proceeds from the sale of gift cards and other advanced sale-type certificates in current liabilities and recognizes admissions or concession revenue when a holder redeems the card or certificate. Additionally, the Company recognizes unredeemed gift cards and other advanced sale-type certificates as other revenues based on a proportion of redemptions, which is estimated primarily based on the Company’s historical experience with such cards and certificates.

Screen advertising revenues are generally recognized over the period that the related advertising is delivered on-screen or in-theatre. Advances collected on long-term screen advertising, concession and other contracts are recorded as deferred revenues. In accordance with the terms of the agreements, the advances collected on such contracts are recognized during the period in which the Company satisfies the related performance obligations, which may differ from the period in which the advances are collected. These advances are recognized on either a straight-line basis over the term of the contracts or as the Company has met its performance obligations in accordance with the terms of the contracts.

See additional revenue recognition policy considerations, updated for the adoption of ASC Topic 606, below.  

Adoption of ASC Topic 606

The Company adopted ASC 606, Revenue from Contracts with Customers, effective January 1, 2018 under the modified retrospective method (cumulative-effect) and therefore, revenue amounts as presented on the condensed consolidated statements of income have not been adjusted for prior periods presented.

Changes to the way in which the Company recognizes revenue resulted in the following impacts to the condensed consolidated statements of income:

 

a)  

Recording of incremental other revenue and interest expense related to the significant financing component of the Company’s Exhibitor Services Agreement (“ESA”) with NCM, LLC (“NCM”).  See further discussion below, including the estimated interest rates assumed in determining the amount of interest expense.

 

b)

Deferral of a portion of admissions and concession revenues for transactions that include the issuance of loyalty points to customers. To determine the amount of revenues to defer upon issuance of points to customers under its points-based loyalty programs, the Company estimated the values of the rewards expected to be redeemed by its customers for those points.  The estimates are based on the rewards that have historically been offered under the loyalty programs, which the Company believes is representative of the rewards to be offered in the future.

 

c)

Increase in other revenues and an increase in utilities and other expenses due to the presentation of transactional fees on a gross versus net basis.

 

d)

Increase in other revenues due to the change in amortization methodology for deferred revenue – NCM that is now amortized on a straight-line basis and effective for the entire term of the ESA.  As a result of the change in amortization method, the Company recorded a cumulative effect of accounting change adjustment of $40,526, net of taxes, in retained earnings on January 1, 2018 (see also Note 5).


10


CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2018

 

Admissions revenues

 

$

(1,524

)

 

$

(4,724

)

Concession revenues

 

$

(725

)

 

$

(1,932

)

Other revenues

 

$

25,794

 

 

$

85,963

 

 

 

The Company applied the practical expedient to exclude sales and other similar taxes collected from customers from its transaction price for purposes of recording revenues.  As such, revenues are presented net of such taxes.

Disaggregation of Revenue

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2018

 

 

 

U.S.

 

International

 

 

 

 

 

U.S.

 

International

 

 

 

 

 

 

Operating

 

Operating

 

 

 

 

 

Operating

 

Operating

 

 

 

 

Major Goods/Services

 

Segment (1)

 

Segment

 

Consolidated

 

 

Segment (1)

 

Segment

 

Consolidated

 

Admissions revenues

 

$

333,274

 

$

94,342

 

$

427,616

 

 

$

1,091,489

 

$

297,621

 

$

1,389,110

 

Concession revenues

 

 

207,960

 

 

56,205

 

 

264,165

 

 

 

661,328

 

 

169,915

 

 

831,243

 

Screen advertising and

   promotional revenues

 

 

19,010

 

 

13,420

 

 

32,430

 

 

 

58,240

 

 

43,135

 

 

101,375

 

Other revenues

 

 

22,031

 

 

7,993

 

 

30,024

 

 

 

76,635

 

 

24,896

 

 

101,531

 

Total revenues

 

$

582,275

 

$

171,960

 

$

754,235

 

 

$

1,887,692

 

$

535,567

 

$

2,423,259

 

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 14 for additional information on intercompany eliminations.

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2018

 

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

U.S.

 

 

International

 

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

Operating

 

 

Operating

 

 

 

 

 

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

 

Segment (1)

 

 

Segment

 

 

Consolidated

 

Goods and services

   transferred at a point

   in time

 

$

561,849

 

 

$

155,291

 

 

$

717,140

 

 

$

1,824,138

 

 

$

482,790

 

 

$

2,306,928

 

Goods and services

   transferred over time

 

 

20,426

 

 

 

16,669

 

 

 

37,095

 

 

 

63,554

 

 

 

52,777

 

 

 

116,331

 

Total

 

$

582,275

 

 

$

171,960

 

 

$

754,235

 

 

$

1,887,692

 

 

$

535,567

 

 

$

2,423,259

 

11


CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

 

(1)

U.S. segment revenues include eliminations of intercompany transactions with the international operating segment.  See Note 14 for additional information on intercompany eliminations.

Deferred Revenues

The following table presents changes in the Company’s deferred revenues for the nine months ended September 30, 2018.  

 

Deferred Revenues

 

Deferred Revenue - NCM

 

 

Other Deferred Revenues (1)

 

 

Total

 

Balance at January 1, 2018

 

$

351,706

 

 

$

86,498

 

 

$

438,204

 

  Impact of adoption of ASC Topic 606

 

 

(53,605

)

 

 

 

 

 

(53,605

)

  Amounts recognized as accounts receivable

 

 

 

 

 

13,693

 

 

 

13,693

 

  Cash received from customers in advance

 

 

 

 

 

80,617

 

 

 

80,617

 

  Common units received from NCM (see Note 7)

 

 

5,012

 

 

 

 

 

 

5,012

 

  Revenue recognized during period

 

 

(11,806

)

 

 

(94,790

)

 

 

(106,596

)

  Foreign currency translation adjustments

 

 

 

 

 

(2,468

)

 

 

(2,468

)

Balance at September 30, 2018

 

$

291,307

 

 

$

83,550

 

 

$

374,857

 

 

(1)

Includes liabilities associated with outstanding gift cards and SuperSavers, points or rebates outstanding under the Company’s loyalty and membership programs and revenues not yet recognized for screen advertising and other promotional activities. Classified as accounts payable and accrued expenses or other long-term liabilities on the condensed consolidated balance sheet.

The table below summarizes the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of September 30, 2018 and when the Company expects to recognize this revenue.

 

 

Twelve Months Ended September 30,

 

 

 

 

 

 

 

 

 

Remaining Performance Obligations

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

Thereafter

 

 

Total

 

Deferred revenue - NCM

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

15,831

 

 

$

212,152

 

 

$

291,307

 

Deferred revenue - other

 

 

70,468

 

 

 

12,682

 

 

 

264

 

 

 

136

 

 

 

 

 

 

 

 

 

83,550

 

Total

 

$

86,299

 

 

$

28,513

 

 

$

16,095

 

 

$

15,967

 

 

$

15,831

 

 

$

212,152

 

 

$

374,857

 

Accounts receivable as of September 30, 2018 included approximately $49,224 of receivables related to contracts with customers.  The Company did not record any assets related to the costs to obtain or fulfill a contract with customers during the nine months ended September 30, 2018.

Significant Financing Component

As discussed further in Note 6, in connection with the completion of the NCM, Inc. (“NCMI”) initial public offering, the Company amended and restated its ESA with NCM and received approximately $174,000 in cash consideration from NCM.  The proceeds were recorded as deferred revenue and are being amortized over the term of the modified ESA, or through February 2037.  In addition to the consideration received upon the ESA modification during 2007, the Company also receives consideration in the form of common units from NCM, at each annual common unit adjustment settlement, in exchange for exclusive access to the Company’s newly opened domestic screens under the ESA.  See Note 6 for additional information regarding the common unit adjustment and related accounting.   Due to the significant length of time between receiving the consideration from NCM and fulfillment of the related performance obligation, the ESA includes an implied significant financing component, as per the guidance in ASC Topic 606.  

As a result of the significant financing component on deferred revenue - NCM, the Company recognized incremental screen advertising revenue and an offsetting interest expense of $4,983 and $14,875 during the three and nine months ended September 30, 2018, respectively. The interest expense was calculated using the Company’s incremental borrowing rates at the time when the cash and each tranche of common units were received from NCM, which ranged from 5.5% to 8.0%.

 

12


CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

4.

Long Term Debt Activity

Senior Secured Credit Facility

On March 29, 2018, the Company amended its senior secured credit facility to extend the maturity of the term loan to March 29, 2025, reduce the rate at which the term loan bears interest by 0.25% and to reduce the amount of real property required to be mortgaged to secure the loans. Under the amended facility, quarterly principal payments of $1,649 are due on the term loan through December 31, 2024, with a final principal payment of $613,351 due on March 29, 2025. The Company incurred debt issue costs of approximately $4,962 in connection with the amendment, which are reflected as a reduction of long term debt on the condensed consolidated balance sheet as of September 30, 2018.  As a result of the amendment, the Company wrote-off $780 of unamortized debt issue costs and incurred approximately $704 in legal and other fees, both of which are reflected as loss on debt amendments and refinancing on the condensed consolidated statements of income for the nine months ended September 30, 2018.  

Fair Value of Long-Term Debt

The Company estimates the fair value of its long-term debt using the market approach, which utilizes quoted market prices that fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by ASC 820, Fair Value Measurement (“ASC Topic 820”). The carrying value of the Company’s long-term debt was $1,812,349 and $1,817,295 as of September 30, 2018 and December 31, 2017, respectively, excluding unamortized debt discounts and debt issue costs. The fair value of the Company’s long-term debt was $1,804,535 and $1,840,918 as of September 30, 2018 and December 31, 2017, respectively.

5.

Equity

Below is a summary of changes in stockholder’s equity attributable to Cinemark USA, Inc., noncontrolling interests and total equity for the nine months ended September 30, 2018 and 2017:

 

 

 

Cinemark

 

 

 

 

 

 

 

 

 

 

 

USA, Inc.

 

 

 

 

 

 

 

 

 

 

 

Stockholder’s

 

 

Noncontrolling

 

 

Total

 

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at January 1, 2018

 

$

1,409,602

 

 

$

11,893

 

 

$

1,421,495

 

Cumulative effect of change in accounting principle, net of taxes of $13,079 (see Note 3)

 

 

40,526

 

 

 

 

 

 

40,526

 

Share based awards compensation expense

 

 

9,676

 

 

 

 

 

 

9,676

 

Dividends paid to parent</