UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 20152018
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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☐ No x☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ¨☐ No x☑
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 x☑ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x☑ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“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 Act). Yes ¨☐ Nox☑
This registrant is privately held and there is no public trading market for its equity securities; therefore the registrant is unable to calculate the aggregate market value of the voting and non-voting common equity held by non-affiliates.
As of February 29, 2016,March 1, 2019, 1,500 shares of Class A common stock and 182,648 shares of Class B common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive proxy statement of Cinemark Holdings, Inc. the registrant’s parent company, to be filed within 120 days of December 31, 2015,2018, are incorporated by reference into Part III, Items 10-14, of this annual report on Form 10-K.
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Cautionary Statement RegardingRegarding Forward-Looking Statements
This annual report on Form 10-K includes “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, or the Exchange Act. The “forward looking statements” include our current expectations, assumptions, estimates and projections about our business and our industry. They include statements relating to:
You can identify forward-looking statements by the use of words such as “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions which are intended to identify 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. In evaluating forward-looking statements, you should carefully consider the risks and uncertainties described in the “Risk Factors” section in Item 1A of this Form 10-K and elsewhere in this Form 10-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors contained in this Form 10-K. Forward-looking statements contained in this Form 10-K reflect our view only as of the date of this Form 10-K. 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.
Certain Definitions
Unless the context otherwise requires, all references to “we,” “our,” “us,” the “issuer” or “Cinemark” relate to Cinemark USA, Inc. and its consolidated subsidiaries. All references to Latin America are to Brazil, Mexico (sold during November 2013), Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Curacao and Curacao.Paraguay. Unless otherwise specified, all operating and other statistical data are as of and for the year ended December 31, 2015.
Our Company
Cinemark USA, Inc. and subsidiaries, or the Company, us or our, is a leader in the motion picture exhibition industry, with theatres in the United States, or U.S., Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Curacao and Curacao.Paraguay.
As of December 31, 2015,2018, we managed our business under two reportable operating segments: U.S. markets and international markets. See Note 1817 to the consolidated financial statements.
Cinemark USA, Inc. is a Texas corporation incorporated in 1984 and a wholly-owned subsidiary of Cinemark Holdings, Inc. Our principal executive offices are at 3900 Dallas Parkway, Suite 500, Plano, Texas 75093. Our telephone number is (972) 665-1000. We maintain a corporate website atwww.cinemark.com.Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, are available on our website free of charge under the heading “About - Investor“Investor Relations – Financials - SEC Filings” as soon as practicable after such reports are filed or furnished electronically to the Securities and Exchange Commission, or the SEC. Additionally, all of our filings with the SEC can be accessed on the SEC’s website at http://www.sec.gov.www.sec.gov.
Description of Business
We are a leader and one of the leadersmost geographically diverse operators in the motion picture exhibition industry. As of December 31, 2015,2018, we operated 513546 theatres and 5,7966,048 screens in the U.S. and Latin America and approximately 280more than 282 million patronsguests attended our theatres worldwide during the year ended December 31, 2015. We are one of the most geographically diverse worldwide exhibitors, with theatres in fifteen countries as of December 31, 2015. As of December 31, 2015, our2018. Our U.S. circuit had 337341 theatres and 4,5184,586 screens in 41 states and our international circuit had 176205 theatres and 1,278 screens.
Revenues, operating income1,462 screens in 15 countries. Our significant and net income attributable to Cinemark USA, Inc.diverse presence in the U.S. and Latin America has made us an important distribution channel for the year ended December 31, 2015, were $2,852.6 million, $425.8 million and $218.5 million, respectively. At December 31, 2015 we had cash and cash equivalents of $588.5 million and total long-term debt of $1,814.6 million. Approximately $579.0 million, or 32%, of our long-term debt accrues interest at variable rates and approximately $8.4 million of our long-term debt matures in 2016.
We selectively build or acquire new theatres in markets where we can establish and maintain a strong market position. During the year ended December 31, 2015, we built 22 new theatres with 182 screens and acquired three theatres with 19 screens.
movie studios. We believe our portfolio of modern, high-quality theatres with multiple platforms provides a preferred destination for moviegoers and contributes to our solidconsistent financial performance.
Revenues, operating income and consistent cash flows from operating activities. Our significant and diverse presence innet income attributable to Cinemark USA, Inc. for the U.S. and Latin America has made us an important distribution channel for movie studios, particularly considering the expanding worldwide box office.
We continue to develop and expand new platforms and market adaptive concepts for our theatre circuit, such as XD, Movie Bistro, Cinemark Reserve, Luxury Lounger reclining seats, D-BOX seating, CinèArts and other premium concepts.
Our XD screens represent the largest private label premium large format footprint in the industry. Our XD auditorium offers a premium experience utilizing the latest in digital projection and enhanced custom sound, including a Barco Auro 11.1 sound system or Dolby Atmos in select locations. The XD experience includes wall-to-wall and ceiling-to-floor screens, wrap-around sound, plush seating and a maximum comfort entertainment environment for an immersive experience. The exceptional XD technology does not require special format movie prints, which allows us the flexibility to play any available digital print we choose, including 3-D content, in the XD auditorium without any print enhancements required. As ofyear ended December 31, 2015,2018, were $3,221.8 million, $390.9 million and $215.7 million, respectively. At December 31, 2018 we had 210 XD auditoriums in our worldwide circuit with plans to install 15 to 20 more XD auditoriums during 2016.
The Movie Bistro locations offer in-theatre dining with expanded food offerings, such as fresh wraps, hot sandwiches, burgers,cash and gourmet pizzas,cash equivalents of $426.2 million and a selectiontotal long-term debt of beers, wines, and frozen cocktails, all of which can be enjoyed in the comfort of the auditoriums. We currently have three domestic theatres and one international theatre with the bistro concept and we plan to expand this premium concept to two new domestic locations during 2016.
During 2014, we opened our first Cinemark Reserve theatre in the U.S.$1,809.3 million. Approximately $202.9 million, or 11%, which features a VIP area with luxury recliner seating and other amenities, along with a wide variety of food and beverage products. We opened our second Cinemark Reserve theatre in the U.S. during 2015. We have a similar VIP concept offering recliner seating in five other domestic locations and in 22 of our international theatres, referred to locally as either Cinemark Premiere or Cinemark Prime. We plan to continue to incorporate this concept in fourlong-term debt accrues interest at variable rates and $8.0 million of our new domestic and international theatres and convert three of our existing locations during 2016.long-term debt matures in 2019.
We have incorporated Luxury Lounger reclining seats in the majority of our new domestic builds and have also repositioned some of our existing domestic theatres to offer this premium seating feature. We currently feature Luxury Loungers in 29 of our domestic theatres, representing 397 screens. We plan to offer the Luxury Loungers in approximately 20% of our domestic circuit by the end of 2016.2
We currently have auditoriums throughout our worldwide circuit that offer seats with immersive cinematic motion, calledD-BOX. These seats are programmed in harmony with the audio and video content of the film and makes the viewer feel as if they are part of the movie itself. We offer D-BOX seating in 96 auditoriums throughout our worldwide circuit. We expect to add D-BOX seating to 40 locations during 2016.
Our CinèArts locations provide moviegoers with the best selection of art and independent cinema in a captivating, unique environment and has set the industry standard for providing distinct, acclaimed and award-winning films. We currently have 14 domestic theatres that are dedicated to art and independent content and 57 of our other domestic theatres also offer art and independent films on a limited basis.
Motion Picture Exhibition Industry Overview
Technology Platform
The motion picture exhibition industry began its conversion to digital projection technology during 2009. Digital projection technology allows filmmakers the ability to showcase imaginative works of art exactly as they were intended, with incredible realism and detail. A digitally produced or digitally converted movie can be distributed to theatres via satellite, physical media, or fiber optic networks. The digitized movie is stored on a computer/server which “serves” it to a digital projector for each screening of the movie. This format enables us to more efficiently move titles between auditoriums within a theatre to appropriately address demand for each title.
Currently, all of our first-run domestic and international theatres are fully digital. Digital projection allows us to present 3-D content and alternative entertainment such as live and pre-recorded sports programs, concert events, the Metropolitan Opera, gaming events and other special presentations. Three-dimensional technology offers a premium experience with crisp, bright, ultra-realistic images. According to Motion Picture Association of America, or MPAA, approximately 17% and 13% of domestic box office for 2013 and 2014, respectively, was generated by 3-D tickets.
During 2013, through a joint venture named Digital Cinema Distribution Coalition, or DCDC, the motion picture exhibition industry developed a content delivery network that allows for delivery of all digital content to U.S. theatres via satellite. Delivery of content via satellite reduces film transportation costs for both distributors and exhibitors, as a portion of the costs to produce and ship hard drives has been eliminated.
We have started to expand satellite delivery technology into some of our Latin American markets, initially for live event presentations. Approximately 59 of our international theatres have capabilities to receive live event feeds via satellite, with some of these locations also able to receive film content via satellite.
Domestic Markets
The U.S. motion picture exhibition industry set an all-time box office record during 2015 with an estimated $11.1 billion in revenues. This represents an increase of approximately 7% over 2014 and an increase of 2% overreported box office revenues of approximately $11.1 billion for the previous record set during 2013.2017. Preliminary estimates for 2018 indicate that box office revenues reached an all-time high of $11.9 billion, an approximate 7% increase over 2017. The following table represents the results of a survey by MPAA published during March 2015,2018, outlining the historical trends in U.S. box office performance for the ten year period from 20052008 to 20142017 (industry data for 20152018 has not yet been released):
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U.S. Box Office Revenues | Attendance | Average Ticket |
| Office Revenues |
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| Attendance |
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| Average Ticket |
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Year | ($ in billions) | (in billions) | Price |
| ($ in billions) |
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| (in billions) |
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| Price |
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2005 | $ | 8.8 | 1.38 | $ | 6.41 | |||||||||||||||||
2006 | $ | 9.2 | 1.40 | $ | 6.55 | |||||||||||||||||
2007 | $ | 9.6 | 1.40 | $ | 6.88 | |||||||||||||||||
2008 | $ | 9.6 | 1.34 | $ | 7.18 |
| $ | 9.6 |
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| 1.34 |
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| $ | 7.18 |
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2009 | $ | 10.6 | 1.42 | $ | 7.50 |
| $ | 10.6 |
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| 1.42 |
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| $ | 7.50 |
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2010 | $ | 10.6 | 1.34 | $ | 7.89 |
| $ | 10.6 |
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| 1.34 |
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| $ | 7.89 |
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2011 | $ | 10.2 | 1.28 | $ | 7.93 |
| $ | 10.2 |
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| 1.28 |
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| $ | 7.93 |
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2012 | $ | 10.8 | 1.36 | $ | 7.96 |
| $ | 10.8 |
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| 1.36 |
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| $ | 7.96 |
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2013 | $ | 10.9 | 1.34 | $ | 8.13 |
| $ | 10.9 |
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| 1.34 |
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| $ | 8.13 |
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2014 | $ | 10.4 | 1.27 | $ | 8.17 |
| $ | 10.4 |
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| 1.27 |
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| $ | 8.17 |
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2015 |
| $ | 11.1 |
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| 1.32 |
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| $ | 8.43 |
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2016 |
| $ | 11.4 |
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| 1.32 |
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| $ | 8.65 |
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2017 |
| $ | 11.1 |
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| 1.24 |
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| $ | 8.97 |
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Films leading the box office during the year ended December 31, 2015 includedStar Wars: The Force Awakens, Jurassic World,Avengers: Age of Ultron,Hunger Games: Mockingjay Part II, Furious 7, American Sniper, 50 Shades of Grey,Inside Out,Minions,Spectre andMission: Impossible 5,among other films.
Films scheduled for release during 2016 include well-known franchise films such asCaptain America: Civil War,Batman V Superman: Dawn Of Justice,Finding Dory,Star Trek Beyond,and X-Men: Apocalypse; action films such asDeadpool; family films such asThe Secret Life Of Pets,Zootopia, Alice Through The Looking Glass, andSing; and spin-off films such asRogue One: A Star Wars Storyand the Harry Potter spin-offFantastic Beasts And Where To Find Them, among other films.
International Markets
According to MPAA, international box office revenues were $26.0 billion for the year ended December 31, 2014, representing a 4% increase over 2013. International box office growth is a result of strong economies, ticket price increases and new theatre construction. According to MPAA, Latin American box office revenues were $3.0 billion for the year ended December 31, 2014, consistent with 2013 performance.
Growth in Latin America continues to be fueled by a combination of growing populations, attractive demographics (i.e., a significant teenage population), continued retail development, and quality product from Hollywood, including 3-D and alternative content offerings. In many Latin American countries, including Brazil, Argentina, Colombia, Peru and Chile, successful local film product can also provide incremental box office growth opportunities.
We believe many international markets will continue to experience growth as new theatre technologies and platforms are introduced, as film and other product offerings continue to expand and as ancillary revenue opportunities grow.
Drivers of Continued Industry Success
We believe the following market trends will drive the continued strength of our industry:
Importance of Theatrical Success in Establishing Movie Brands.Theatrical exhibition has long been the primary distribution channel for new motion picture releases. A successful theatrical release “brands” a film and is one of the major contributors to a film’s success in “downstream” markets, such as digital downloads, video on-demand, pay-per-view television, DVDs, and network and syndicated television.
Increased Importance of International Markets for Box Office Success. International markets continue to be an increasingly important component of the overall box office revenues generated by Hollywood films, accounting for $26.0 billion, or approximately 72%, of 2014 total worldwide box office revenues according to MPAA. (As of the date of this report, 2015 industry data was not yet available.) With the continued growth of the international motion picture exhibition industry, we believe the relative contribution of markets outside North America will become even more significant. Many of the top U.S. films released during 2015 also performed exceptionally well in international markets. Such films includedFurious 7, which grossed approximately $1,162.0 million in international markets, or approximately 77% of its
worldwide box office,Avengers: Age of Ultron, which grossed approximately $946.0 million in international markets, or approximately 67% of its worldwide box office, and Jurassic World, which grossed approximately $1,014.0 million in international markets, or approximately 61% of its worldwide box office.
Stable Box Office Levels.Over the past ten years, industry statistics have shown slight increases and decreases in attendance from one year to another, however domestic box office revenues have remained relatively stable during this period. The industry has not experienced highly volatile results, even during recessionary periods, demonstrating the stability of the industry, and its continued ability to attract consumers.consumers and the fact that box office performance is primarily dependent on the quality and quantity of film product rather than economic cycles. Average ticket prices can also be driven by the mix of film product and availability of films in premium formats.
Films leading the box office during the year ended December 31, 2018 included Black Panther, Avengers: Infinity War, Incredibles 2, Jurassic World: Fallen Kingdom, Aquaman, Deadpool 2, Dr. Seuss’ The Grinch, Mission Impossible – Fallout, Ant-Man and the Wasp, Solo: A Star Wars Story, Venom, A Quiet Place, Crazy Rich Asians, Halloween, Bumblebee, Ralph Breaks the Internet, Fantastic Beasts: The Crimes of Grindelwald, Mary Poppins Returns, A Star is Born, Bohemian Rhapsody and other films, as well as the carryover of The Greatest Showman, Jumanji: Welcome to the Jungle and Star Wars: The Last Jedi.
Films scheduled for release during 2019 include Avengers: Endgame, Star Wars: Episode IX, The Lion King, Frozen 2, Toy Story 4, Aladdin, Captain Marvel, It 2, Spider-Man: Far From Home, The Secret Life of Pets 2, Joker, Dumbo, and Godzilla 2 among other films.
International Markets
According to MPAA, international box office revenues increased approximately 7% to $29.5 billion for the year ended December 31, 2017, from $27.4 billion for the year ended December 31, 2016. More specifically, Latin American box office revenues were $3.4 billion for the year ended December 31, 2017, compared to $2.8 billion for the year ended December 31, 2016, an increase of approximately 22%. (Industry data for 2018 has not yet been released.)
While certain Latin American countries have experienced recent political and economic challenges, performance is also impacted by social behaviors, growing populations, continued retail development in select markets, and quality product from Hollywood, including 3-D and alternative content offerings. In many Latin American countries, including Brazil, Argentina, Colombia, Peru and Chile, successful local film product can also provide incremental box office growth opportunities.
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We believe many international markets will expand as new theatre technologies are introduced to more locations, as film and other content offerings continue to broaden, as ancillary revenue opportunities grow and as local economies strengthen. We also believe most of these markets are underscreened in comparison to the U.S. and European markets.
Drivers of Continued Industry Success
We believe the following market trends will continue to drive the strength of our industry:
Importance of Theatrical Success in Establishing Movie Brands. Theatrical exhibition has long been the primary distribution channel for new major motion picture releases. A successful theatrical release “brands” a film and is one of the major contributors to a film’s success in “downstream” markets, such as digital downloads, video on-demand, pay-per-view television, DVDs, SVOD, and network and syndicated television, as well as branded retail merchandise.
Convenient and Affordable Form of Out-Of-Home Entertainment.Movie going continues to be one of the most convenient and affordable forms of out-of-home entertainment, with an estimated average ticket price in the U.S. of $8.17$8.97 in 2014.2017. Average prices in 20142017 for other forms of out-of-home entertainment in the U.S., including sporting events and theme parks, ranged from approximately $28.00$31.67 to $84.00$94.98 per ticket according to MPAA. (As of the date of this report, 20152018 industry data was not yet available.)
Innovation Using Digital and Satellite Technology. Our industry began converting to digital projection technology during 2009. Our domestic circuit also converted to satellite technology during 2014 and our international circuit has started to implement satellite technology as a means to receive film and other content. Digital projection combined with satellite delivery allows exhibitors to expand their product offerings, including the presentationExpansion of 3-D content and alternative entertainment. Alternative entertainment may include pre-recorded programs as well as live sports programs, concert events, the Metropolitan Opera, e-sports gaming events and other special presentations. New and enhanced programming alternatives expands the industry’s offerings to attract a broader customer base.
Introduction of New PlatformsConcepts and Product Offerings.Offerings that Enhance the Movie-Going Experience. The motion picture exhibition industry continues to develop new movie theatre platforms and concepts to respond to varying and changing consumer preferences.preferences and to continue to differentiate the movie-going experience from watching a movie at home. In addition to changing the overall style of, and amenities offered in, some theatres, concession product offerings have continued to expand to more than just traditional popcorn and candy items. SomeMany locations now offer hot foods, adult beveragesalcohol offerings and/or healthier snack options for patrons.guests. Motion seats are offered in some locations, further enhancing the movie viewing experience. Virtual reality has also been developed for in-theatre enjoyment. New and enhanced programming alternatives expand the industry’s entertainment offerings to attract a broader customer base.
Contribution of International Markets to Box Office Performance. International markets continue to be an increasingly important component of the overall box office revenues generated by Hollywood films, accounting for $29.5 billion, or approximately 73%, of 2017 total worldwide box office revenues according to MPAA. (As of the date of this report, 2018 industry data was not yet available.)With the meaningful contribution of the international motion picture exhibition industry, we believe the relative contribution of markets outside North America will continue to be impactful. Many of the top U.S. films released during 2018 also performed exceptionally well in international markets. Avengers: Infinity War grossed $1,370.0 million in international markets, or 67% of its worldwide box office. Jurassic World: Fallen Kingdom generated $887.1 million in international markets, or 68% of its worldwide box office. Aquaman generated $774.2 million in international markets, or 71% of its worldwide box office.
Our Strategy
Key components of our strategy include:
Focus on Providing an Extraordinary Guest Experience to Maximize Attendance. We differentiate our theatres by focusing on providing an extraordinary guest experience through a variety of initiatives, as discussed below. We believe our focus on the guest experience is a catalyst for attendance growth and is a primary factor in our consistent industry-leading results.
We have a market-adaptive approach with our theatre amenities, including Luxury Lounger recliner seats, enhanced food and beverage offerings, and our exhibitor-branded premium large format, XD, IMAX, motion seats, and a new virtual reality offering in one of our domestic theatres. Our innovative and advanced technology selections allow us to consistently deliver the highest quality presentation to fully immerse our guests in the on-screen action.
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Through our various marketing initiatives, including enhanced and tailored customer interactions, continued investment in our website and app experiences and development of our loyalty and membership programs, we are dedicated to further understanding our guests and enriching their movie-going experience. We are also committed to providing a great employee experience through ongoing training, incentive programs and offering a supportive environment, as our engaged employees are empowered to provide first-rate customer service to our guests.
Sustained Investment in Core Circuit Combined with Targeted Growth. We continually utilize our cash flows from operations to invest in our circuit to ensure the highest quality experience for our guests. Our commitment to investing in our theatre assets is demonstrated by our level of capital expenditures for the years ended December 31, 2017 and 2018, at approximately $380.9 million and $346.1 million, respectively. We selectively build or acquire new theatres in markets where we can establish and maintain a strong market position. During the year ended December 31, 2018, we built eleven new theatres with 81 screens and acquired three theatres with 19 screens.
Competitive Strengths
We believe the following strengths allow us to compete effectively:
Disciplined Operating Philosophy. We generated operating income and net income attributable to Cinemark USA, Inc. of $390.9 million and $215.7 million, respectively, for the year ended December 31, 2018. Our solid operating performance is a result of our disciplined and consistent operating philosophy that centers on building new, and reinvesting in our existing, high-quality theatres, focusing on the guest experience, maintaining favorable theatre-level economics, controlling operating costs and effectively reacting to economic and market changes.
We continue to grow organically as well as through the acquisition of high-quality theatres in select markets. Our growth strategy has centered around meeting our stringent return on investment thresholds while also complementing our existing theatre circuit. We continue to generate consistent cash flows from operating activities, which demonstrates the success of our growth strategy. We believe the combination of our strong balance sheet and our continued commitment to earn a strong return on our capital investments, will continue to provide us with the financial flexibility to pursue further expansion opportunities and maintain our existing locations at a high standard, while also allowing us to effectively service our debt obligations and continue to offer our stockholders a strong dividend yield.
Leading Position in Our U.S. Markets. We have a leading market share in most of the U.S. markets we serve, which includes a presence in 41 states. For the year ended December 31, 2018, we ranked either first or second, based on box office revenues, in 20 out of our top 25 U.S. markets, including the San Francisco Bay Area, Dallas, Houston, Salt Lake City, Sacramento, Cleveland, Austin and Las Vegas.
Located in Top Latin American Markets. We have successfully established a significant presence in major cities in Latin America, with theatres in fourteen of the twenty largest metropolitan areas in South America. As of December 31, 2018, we operated 205 theatres and 1,462 screens in 15 countries. Our international screens generated revenues of $682.8 million, or 21.2% of our total revenues, for the year ended December 31, 2018. We are the largest exhibitor in Brazil and Argentina and have significant market presence in Colombia, Peru and Chile. Our geographic diversity makes us an important global distribution channel for the movie studios.
State-of-the-Art Theatre Circuit. We offer a state-of-the-art movie-going experience, which we believe makes our theatres a preferred destination for moviegoers in our markets. During 2018, we built 81 new screens worldwide. As of December 31, 2018, we had commitments to open 212 additional new screens over the next three years.
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We have incorporated Luxury Lounger recliner seats in all of our recent domestic new builds and have also repositioned many of our existing domestic theatres to offer this premium seating feature. We currently feature Luxury Loungers in 2,565 domestic auditoriums, representing 55.9% of our domestic circuit. We plan to continue to add additional Luxury Loungers in certain of our domestic locations during 2019.
Our XD screens represent the largest exhibitor-sponsored premium large format footprint in the industry. Our XD auditoriums offer a premium experience utilizing the latest in digital projection and enhanced custom sound, including a Barco Auro 11.1 or Dolby Atmos sound system in select locations. The XD experience includes wall-to-wall screens, wrap-around sound, plush seating and a maximum comfort entertainment environment for an immersive experience. The exceptional XD technology does not require special format movie prints, which allows us the flexibility to showcase any available digital print we choose, including 3-D content, in our XD auditoriums. We also prefer the economies of our exhibitor-sponsored format since there is no additional revenue share component outside of routine film rental. As of December 31, 2018, we had 256 XD auditoriums in our worldwide circuit. We expect to further expand our XD footprint during 2019.
We offer enhanced food and beverages such as fresh wraps, hot sandwiches, burgers, and gourmet pizzas, and a selection of beers, wines, and frozen cocktails, all of which can be enjoyed in the comfort of the auditoriums, at approximately 58% of our worldwide theatres. We also offer market-adaptive concepts with full bars or dine-in areas in certain of our theatres, and continue to expand to additional locations.
We currently have auditoriums that offer seats with immersive cinematic motion, which we refer to as motion seats, throughout our worldwide circuit. These motion seats are programmed in harmony with the audio and video content of the film and further immerse guests in the on-screen action. We offer motion seats in 229 auditoriums throughout our worldwide circuit. We plan to add motion seats to additional locations during 2019.
During 2018, we collaborated on an in-theatre immersive virtual reality technology in one of our domestic theatres that takes guests on a real-life, full-body journey where they engage with characters and their environment through sight, sound, touch, smell and motion. We plan to install this technology in at least one additional domestic theatre during 2019 and we are continuing to evaluate other locations at which we can offer our guests this unique entertainment option.
Experienced Management.Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer Mark Zoradi, Chief Operating Officer and Chief Financial Officer Sean Gamble, President and Chief Operating Officer Robert Copple and President-International Valmir Fernandes, our operational management team has many years of industry experience. Each of our international offices is led by general managers that are local citizens familiar with cultural, political and economic factors impacting each country. Our worldwide management team has successfully navigated us through many industry and economic cycles.
Disciplined Operating Philosophy.We generated operating income and net income attributable to Cinemark Holdings, Inc. of $425.8 million and $218.5 million, respectively, for the year ended December 31, 2015. Our solid operating performance is a result of our disciplined operating philosophy that centers on building high-quality theatres, while maintaining favorable theatre-level economics, controlling operating costs and effectively reacting to economic and market changes.
Leading Position in Our U.S. Markets.We have a leading market share in most of the U.S. markets we serve, which includes a presence in 41 states. For the year ended December 31, 2015, we ranked either first or second, based on box office revenues, in 22 out of our top 30 U.S. markets, including the San Francisco Bay Area, Dallas, Houston, Salt Lake City, Sacramento, Cleveland and Austin.
Located in Top Latin American Markets.We have continued to invest throughout Latin America. As of December 31, 2015, we operated 176 theatres and 1,278 screens in 14 countries. Our international screens generated revenues of $728.7 million, or 25.5% of our total revenues, for the year ended December 31, 2015. We have successfully established a significant presence in major cities in the region, with theatres in thirteen of the fifteen largest metropolitan areas in South America. We are the largest exhibitor in Brazil and Argentina. Our geographic diversity makes us an important distribution channel for the movie studios.
State-of-the-Art Theatre Circuit.We offer state-of-the-art theatres, which we believe makes our theatres a preferred destination for moviegoers in our markets. During 2015, we built 182 new screens worldwide. We currently have commitments to open 184 additional new screenscycles over the next three years. We have installed digital projection technology in all of our worldwide auditoriums. Currently, approximately 55% of our U.S. screens and 65% of our international screens are 3-D compatible. We currently have 14 digital IMAX screens. As of December 31, 2015, we had the industry-leading private label premium large format circuit with 210 XD auditoriums in our theatres. We have plans to install 15 to 20 additional XD auditoriums during 2016. We also continue to develop new market-adaptive theatre concepts in various markets. We believe we offer the brightest picture in the industry, with our Doremi servers and Barco digital projectors, and custom surround sound in our auditoriums. We have also established a centralized theatre support center that monitors and responds to projection performance and theatre network connectivity issues across our worldwide circuit on real-time basis.
Disciplined and Targeted Growth Strategy.We continue to grow organically as well as through the acquisition of high-quality theatres in select markets. Our growth strategy has centered around achieving a target return on investment while also complementing our existing theatre circuit. We continue to generate significant cash flows from operating activities, which demonstrates the success of our growth strategy. We believe a combination of our strong balance sheet and our expected level of cash flows will continue to provide us with the financial flexibility to pursue further growth opportunities, while also allowing us to efficiently service our debt obligations and continue to offer our stockholders a strong dividend yield under our current dividend policy.6
Our Strategy
We believe our disciplined operating philosophy and experienced operational management team will enable us to continue to enhance our leading position in the motion picture exhibition industry. Key components of our strategy include:
Focus on Operational Excellence and Customer Satisfaction.We continue to focus on achieving operational excellence by controlling theatre operating costs and training and motivating our staff all while focusing on making each of our customer’s experiences memorable. We strive for first-rate customer service and focus on driving attendance. Our consistent industry-leading margins reflect our ability to deliver the highest quality presentation to our patrons while also managing changes in product and consumer preferences.
Growth in Existing and New Markets.We continue to seek growth opportunities by building or acquiring high-quality theatres that meet our strategic, financial and demographic criteria. We added 25 new theatres with 201 screens to our worldwide circuit during the year ended December 31, 2015. We also monitor economic and market trends to ensure our existing theatres offer a broad range of products, prices and platforms that satisfy our patrons and to develop new concepts to adapt to changes in preferences. During 2014, we acquired one theatre in Alabama, a new state for us and we opened our first theatre in Bolivia. During 2015, we opened our first theatre in Curacao, adding another new country to our diverse circuit. We have plans to open a theatre in Paraguay, another new country, in 2016.
Commitment to Technological and Product Innovation. Our commitment to technological innovation has resulted in us being 100% digital in our worldwide circuit as of December 31, 2015. In the U.S., 100% of our projectors are networked with satellite infrastructure and our Latin American theatres will be 100% capable by the end of 2016. We continue to expand our worldwide XD auditorium footprint. We are also committed to developing and expanding our new market-adaptive theatres. With our technological innovations, we have broadened the range of entertainment options offered at our theatres by expanding content to include concert events, e-sports gaming events and other special presentations. Approximately 57% of our worldwide screens are 3-D compatible. We are also committed to developing and expanding our market-adaptive concepts. Our concession and food offerings are progressing to selectively include upscale options, hot prepared food, offerings tailored to local demographics, alcoholic beverages, and healthy snack alternatives in addition to our more standard concession products. Theatre amenities we provide to our customers may include our private-label premium large format XD screens, Luxury Lounger reclining seats, VIP lounge areas, reserved seating, and seats with cinematic motion.
Sustained Investment in Existing Circuit.While we continue to grow our theatre circuit with new builds and acquisitions, we also remain committed to investing in our existing theatres to ensure they provide our customers with a comfortable, high-quality entertainment experience. We spent approximately $140 million and $199 million on capital expenditures for existing theatres during the years ended December 31, 2014 and 2015, respectively. Our efforts during 2015 included remodeling some of our existing theatres to include reclining seats and expanded concession offerings, the purchase of our corporate headquarters building in Plano, TX and routine improvements to ensure our theatres offer the highest quality guest experience.
As of December 31, 2015,2018, we operated 513546 theatres and 5,7966,048 screens in 41 U.S. states and 1415 Latin American countries. The following tables summarize the geographic locations of our theatre circuit as of December 31, 2015.2018.
United States Theatres
Total | Total |
| Total |
| Total |
| ||||||||
State | Theatres | Screens |
| Theatres |
| Screens |
| |||||||
Texas | 87 | 1,136 |
| 86 |
|
| 1,136 |
| ||||||
California | 67 | 837 |
| 67 |
|
| 855 |
| ||||||
Ohio | 29 | 365 |
| 29 |
|
| 365 |
| ||||||
Utah | 16 | 209 |
| 15 |
|
| 190 |
| ||||||
Nevada | 10 | 154 |
| 9 |
|
| 140 |
| ||||||
Colorado | 9 | 136 |
| 9 |
|
| 136 |
| ||||||
Illinois |
| 9 |
|
| 126 |
| ||||||||
Pennsylvania | 9 | 125 |
| 9 |
|
| 125 |
| ||||||
Florida |
| 6 |
|
| 110 |
| ||||||||
Kentucky | 9 | 119 |
| 8 |
|
| 109 |
| ||||||
Illinois | 8 | 118 | ||||||||||||
Florida | 6 | 110 | ||||||||||||
Arizona |
| 7 |
|
| 104 |
| ||||||||
Oregon | 6 | 90 |
| 6 |
|
| 90 |
| ||||||
Arizona | 6 | 90 | ||||||||||||
North Carolina |
| 7 |
|
| 83 |
| ||||||||
Louisiana | 5 | 74 |
| 6 |
|
| 83 |
| ||||||
Virginia | 5 | 70 |
| 6 |
|
| 82 |
| ||||||
Oklahoma | 5 | 65 |
| 5 |
|
| 65 |
| ||||||
Iowa |
| 4 |
|
| 62 |
| ||||||||
Washington |
| 5 |
|
| 61 |
| ||||||||
Connecticut | 4 | 58 |
| 4 |
|
| 58 |
| ||||||
Washington | 4 | 55 | ||||||||||||
New Mexico | 4 | 54 |
| 4 |
|
| 54 |
| ||||||
Indiana | 4 | 40 | ||||||||||||
Iowa | 3 | 50 | ||||||||||||
Michigan | 3 | 50 |
| 3 |
|
| 46 |
| ||||||
Massachusetts | 3 | 46 |
| 3 |
|
| 46 |
| ||||||
Arkansas | 3 | 44 |
| 3 |
|
| 44 |
| ||||||
Mississippi | 3 | 41 |
| 3 |
|
| 41 |
| ||||||
Maryland |
| 2 |
|
| 39 |
| ||||||||
Indiana |
| 3 |
|
| 34 |
| ||||||||
South Carolina | 3 | 34 |
| 3 |
|
| 34 |
| ||||||
North Carolina | 3 | 31 | ||||||||||||
Maryland | 2 | 39 | ||||||||||||
New Jersey | 2 | 28 |
| 2 |
|
| 28 |
| ||||||
Georgia | 2 | 27 |
| 2 |
|
| 27 |
| ||||||
New York | 2 | 27 | ||||||||||||
South Dakota | 2 | 26 |
| 2 |
|
| 26 |
| ||||||
Montana | 2 | 25 |
| 2 |
|
| 25 |
| ||||||
Delaware |
| 2 |
|
| 22 |
| ||||||||
West Virginia | 2 | 22 |
| 2 |
|
| 22 |
| ||||||
Delaware | 2 | 22 | ||||||||||||
Kansas | 1 | 20 |
| 1 |
|
| 20 |
| ||||||
New York |
| 1 |
|
| 17 |
| ||||||||
Alaska | 1 | 16 |
| 1 |
|
| 16 |
| ||||||
Missouri | 1 | 15 |
| 1 |
|
| 15 |
| ||||||
Alabama |
| 1 |
|
| 14 |
| ||||||||
Tennessee | 1 | 14 |
| 1 |
|
| 14 |
| ||||||
Wisconsin | 1 | 14 |
| 1 |
|
| 14 |
| ||||||
Alabama | 1 | 14 | ||||||||||||
Minnesota | 1 | 8 |
| 1 |
|
| 8 |
| ||||||
|
| |||||||||||||
Total | 337 | 4,518 |
| 341 |
|
| 4,586 |
| ||||||
|
|
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Country | Total Theatres | Total Screens |
| Total Theatres |
|
| Total Screens |
| ||||||||
Brazil | 74 | 568 |
|
| 84 |
|
|
| 623 |
| ||||||
Colombia | 29 | 151 |
|
| 36 |
|
|
| 202 |
| ||||||
Argentina | 20 | 179 |
|
| 22 |
|
|
| 190 |
| ||||||
Central America(1) | 17 | 124 |
|
| 20 |
|
|
| 141 |
| ||||||
Chile | 16 | 114 |
|
| 19 |
|
|
| 133 |
| ||||||
Peru | 12 | 84 |
|
| 13 |
|
|
| 93 |
| ||||||
Ecuador | 7 | 45 |
|
| 8 |
|
|
| 51 |
| ||||||
Bolivia | 1 | 13 |
|
| 1 |
|
|
| 13 |
| ||||||
|
| |||||||||||||||
Paraguay |
|
| 1 |
|
|
| 10 |
| ||||||||
Curacao |
|
| 1 |
|
|
| 6 |
| ||||||||
Total | 176 | 1,278 |
|
| 205 |
|
|
| 1,462 |
| ||||||
|
|
(1) | Includes Honduras, El Salvador, Nicaragua, Costa Rica, Panama |
We first entered Latin America when we opened a theatre in Chile in 1993. Since then, through our focused international growth strategy, we have developed one of the most geographically diverse theatre circuitcircuits in the region. We have balanced our risk through a diversified international portfolio, which includes theatres in thirteenfourteen of the fifteentwenty largest metropolitan areas in South America. We have established significant presence in Brazil and Argentina, where we are the largest exhibitor, with 568exhibitor. We also have significant market presence in Colombia, Peru and 179 screens, respectively, as of December 31, 2015.Chile.
We believe that certain markets within Latin America continue to be underserved as penetration of movie screens per capita in these markets is substantially lower than in the U.S. and European markets. We intend to continue to build and expand our presence in international markets, with emphasis on Latin America, and fund our expansion primarily with cash flow generated in those markets.from operations. We are able to mitigate cash flow exposure to currency fluctuations by transacting local operating expenses primarily in their respective local currencies. Our geographic diversity throughout LatinSouth and Central America has allowed us to maintain consistent local currency revenue growth,performance, notwithstanding currency and economic fluctuations that may affect any particular market.
Content and Film Licensing
We offer a variety of content at our theatres. We monitor upcoming films and related eventsother content and work diligently with film distributors to license the content that we believe will be most successful in our theatres. We play mainstream films from many different genres, such as animated films, family films, dramas, comedies, horror and action films. We offer content in both 2-D and 3-D formats in all of our theatres, and in selectmany locations, we offer our exhibitor-branded premium large format, XD. We also offer a D-BOX format. The D-BOX format that features movingmotion seats and added sensory features in addition to the ultra-realistic images of 3-D technology.technology in select locations.
We also regularly play art and independent films at many of our U.S. theatres and offer local film product in our international markets, providing a variety of film choices to our patrons. Bringing art and independent films to our theatres allows us to benefit from the growth in the art and independent market driven by the increased interest in art, foreign and documentary films.
guests. We have also establishedoffer a Classic Series at a majority of our U.S. theatres and some of our international theatres, which involves playing digitally re-mastered classic movies that change on a weekly basis. The program covers manya variety of genres of classic films that are generally exhibited during non-peak times.
During December 2013, we formed aOur joint venture, named AC JV, LLC, with Regal Entertainment Group, or Regal, and AMC Entertainment, Inc., or AMC, which then purchased the Fathom event business from National CineMedia, LLC. The Fathom event business generally focuses on theprovides marketing and distribution of live and pre-recorded entertainment programming to movie theatres to augment theatres’ feature film schedules. AC JV, LLC will continue to bring alternative events to our theatres, includingschedules, which includes the Metropolitan Opera, sports programs, concert events, e-sports gaming events and other special presentations, that may be live or pre-recorded. We, along with AC JV, LLC, continue to identify new ways to utilize our theatre platform to provide entertainment to consumers.
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In the domestic marketplace, our corporate film department negotiates with film distributors to license films for each of our domestic theatres. The film distributors are responsible for determining film release dates and film marketing campaigns and the related expenditures. We are responsible for booking the films in film licensing zones, which are either free film licensing zones or competitive film licensing zones. In free film licensing zones, movies can be booked without regard to the film bookings of other exhibitors within that area. In competitive film licensing zones, the distributor allocates its movies generally based on demographics, the conditions, capacity and grossing potential of each theatre, and the terms of exhibition. We are generally able to book films without regard to the film bookings of other exhibitors at approximately 93% of our domestic theatres. We face competition from other exhibitors and other forms of entertainment, as discussed underCompetition below, in both our free and competitive film licensing zones.
In each of our international offices, our local film personnel negotiate with local offices of major film distributors as well as local film distributors to license films for our international theatres. Film distributors are responsible for determining film release dates and film marketing campaigns and the related expenditures, while we are responsible for booking the films at each of our theatres at the optimal showtimes for our guests. In most instances, we are able to license each first-run, wide-release film without regard to the international marketplace, films are not allocated based onbookings of other exhibitors within that area. In certain limited situations, our theatres compete with other nearby theatres for film licensing zones, but played by competitivecontent from film distributors. We face competition for patrons from other exhibitors and other forms of entertainment, as discussed under Competition below, at all of our theatres simultaneously.in all markets. Our theatre personnel focus on providing excellent customer service,an extraordinary guest experience, and we provide a high-quality facility with the most up-to-date sound systems, comfortable seating and other amenities preferred by our patrons,guests, which we believe gives us a competitive advantage in markets where competing theatres play the same films.
In both our domestic and international locations, we pay film rental fees based on a film’s box office receipts at each of our theatres. Film rental rates are negotiated based on either a firm terms formula under which we pay a negotiated rate as determined prior to a film’s run; a sliding scale formula under which the rate is based on a standard rate matrix that is established prior to a film’s run; a firm terms formula, as determined prior to a film’s run, under which we pay a negotiated rate; or a rate that is negotiated after a film’s run.
Food and Beverage
Concession sales are our second largest revenue source, consistently representing approximately 33%35% of total revenues. Concession sales have a much higher margin than admissions sales. We have devoted considerable management effort to increasingexpanding concession sales by expandingenhancing our offerings and adapting to our customers’ changing preferences, as discussed below.
Concession Product Mix. Common concession products offered at all of our theatres may include various sizes and types of popcorn, soft drinks, coffees, juice blends,non-carbonated drinks, candy and quickly-prepared or pre-prepared food, such as hot dogs, pizza, pretzel bites, nachos and ice cream. Other varietiesThe food and flavors of candy, snacks and drinks are offered at theatresbeverage offerings vary based on consumer preferences in thata particular market. We have recently introduced some healthier snack and beverage options for our patrons,guests, which are available at some locations, added alcohol offerings in a growing number of theatres, and also offer a variety of alcoholic beverages in some locations.diverse ethnic foods based on market demographics.
Through our Movie Bistro, Cinemark Reserve and Cinemark Premier concepts,In select locations, we have expanded concession product offerings to include morea broader variety of food and drink options, such as fresh wraps, hot sandwiches, burgers, and gourmet pizzas, and a selection of beers, wines, and frozen cocktails, all of which can be enjoyed in the comfort of the auditoriums. We also have lobby bars and VIP lounges in certainmany domestic and international theatres.
Our point of saleproprietary point-of-sale system allows usour category managers to monitor product sales and readily make changesadjustments to product mix on a theatre-by-theatre or market-by-market basis, when necessary, whichnecessary. This program flexibility also allows us to quickly take advantage ofefficiently activate and manage both national as well asor regional product launches and promotions.promotional initiatives to further grow food and beverage sales.
Pricing.New products and promotions are introduced on a regular basis to increase concession purchasespurchase incidence by existing buyers as well as to attract new buyers. We offer specially-priced product combinations at many of our theatres. We periodicallyroutinely offer discounts to our patronsguests on certain products by offering weekly coupons as well as reusable popcorn tubs and soft drink cups that can be refilled at a discounted price. In certain international countries and in all of our domestic theatres, we offer a loyalty benefit program that periodically offers food and beverage discounts. Our new Cinemark Movie Club membership program also allows our domestic guests to frequent patrons.sign-up for exclusive concessions discounts.
Staff Training.Employees are continually trained in proper sales techniques. Consumertechniques, food preparation and handling and maintaining concession product quality. Some of our product promotions usually include a motivational element that rewards theatre staff for exceptional sales of certain promotional items.
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Theatre Design.Our theatres are designed to optimize efficienciesthe guest purchase experience at the concession stands, which includeincludes multiple service stationsconcession counters throughout a theatre to facilitate serving patronsguests in an expedited manner. We strategically place large concession stands within theatres to heighten visibility, reduce the length of concession lines, and improve traffic flow around the concession stands. We incorporate self-serve candy cases and bottled drink coolers at our traditional crew-serve theatres to help provide convenience for our guests, drive purchase incidence and increase product availability for these two core categories. We also have self-service cafeteria-style concession areas in many of our domestic theatres, which allow customers to select their own refreshments and proceed to the cash register when they are ready. This design allows for more efficient service, enhanced choices, impulse purchases and superior visibility of concession items. In some of our international locations, we allow patronsguests to pre-order concession items, either online or at a kiosk, and pick them up in a dedicated line at the concession counter.
Cost Control.We negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain volume discounts and also negotiate rebates.volume-based and promotional-based rebates with our larger suppliers. Concession supplies are generally distributed through a distribution network. The concession distributor delivers inventory to the theatres which placeafter receiving orders directly withfrom the vendors to replenish stock.theatres or through an online electronic ordering system. We conduct a weeklyfrequent inventory counts of concession products at every theatre to ensure proper stock levels are maintained to appropriately serve our customers.guests.
Pre-Feature Screen Advertising
In our domestic markets, our theatres are part of the in-theatre digital network operated by National CineMedia, LLC, or NCM. NCM provides advertising to our theatres through its branded “First LookNoovie” pre-featurepre-show entertainment program and also handles lobby promotions and displays for our theatres. We believe that the reach, scope and digital delivery capability of NCM’s network provides an effective platform for national, regional and local advertisers to reach an engagedour audience. We receive a monthly theatre access fee for participation in the NCM network and also earn screen advertising revenue on a per patron basis. As of December 31, 2015,2018, we had an approximate 19%25% ownership interest in NCM. See Note 4 to the consolidated financial statements for further discussion of our investment in NCM.
In our international markets, during 2011, our wholly-owned subsidiary Flix Media Publicidade E Entretenimento, Ltda., or Flix Media, began handling all ofhandles our screen advertising functions in Brazil. Our Flix Media marketing personnel work with local agencies and advertisers to coordinate screen advertising in our Brazil theatres. We have expanded the Flix Media advertising services to another exhibitorother exhibitors in Brazil through a revenue share agreement.agreements. In Argentina, we also have in-house personnel that work with local advertisers to arrange screen advertising in our Argentina theatres. We recently acquired analso operate advertising businesssubsidiaries that support our theatres in Chile, which we will also integrate withCentral America, Colombia, Paraguay, Bolivia, Ecuador and Curacao. In Chile, our Flix Media division.subsidiary also represents Cinepolis, making our subsidiary the local leader in cinema advertising. In addition to screen advertising in our theatres, we intend to expand Flix Media’s services to include, among other things, alternative content, digital media and other synergistic media opportunities. In a few of our other international markets, we outsource our screen advertising to local companies who have established relationships with local advertisers that provide similar benefits as NCM.programming benefits. The terms of our international screen advertising contracts vary by country. In some of these locations,country, however, we generally earn a percentage of the screen advertising revenues collected by our partners and in other locations we are paid a fixed annual fee for access to our screens. We will continue to expand Flix Media into our other international locations over the next few years. In addition to screen advertising in our theatres, we intend to expand Flix Media’s services to include, among other things, alternative content, online ticketing,
Marketing and loyalty initiatives.Promotions
Technology Innovations
The motion picture exhibition industry has undertaken certain technology initiatives over the past few years, as discussed below.
Digital Cinema Distribution Coalition
Through the joint venture DCDC with Regal, AMC, Warner Bros. Entertainment, Inc. and Universal Pictures, we began delivering digital content to domestic theatres via satellite during October 2013. As of December 31, 2015, 100% of our domestic auditoriums were capable of receiving content via satellite. Delivery of content via satellite reduces film transportation costs for both distributors and exhibitors, as a portion of the costs to produce and ship hard drives has been eliminated. The satellite delivery system established by DCDC is available to all exhibitors and content providers and allows live and store-and-forward content to be delivered to our theatres.
Satellite Delivery - International
The industry is beginning to expand satellite delivery technology to certain Latin American markets. Currently, 59 of our international theatres have the ability to receive live events via satellite, with some of these also able to receive film content via satellite. During 2016, we plan to install the necessary equipment in all of our international theatres to allow them to receive content via satellite.
Marketing
We generally market our theatres and special events, including new theatre grand openings, remodel openings and VIP events, using Internetemail, organic and paid digital advertising, and newspaper directory film schedules. Radioschedules, and radio and television advertising spots are also used to promote certain motion pictures and special events, such as theatre grand openings and VIP events.spots. We exhibit previews of coming attractions and current films as part of our on-screen pre-feature program. We offer patronsguests access to movie times, the ability to buy and print their tickets and reserve their seats in advance and purchase gift cards at our websitewww.cinemark.com and via our smart phone and tablet applications. Customers can subscribe to our weekly emails to receive information about current and upcoming films at their preferred Cinemark theatre(s), including details about upcoming Cinemark XD movies, advanced ticket sales, screenings, special events, concerts and live broadcasts; as well as contests, promotions, and coupons for concession savings. Email communications and push notifications are utilized to provide customers with the latest information or exclusive offers such as screenings, contests or promotions. We partner with film distributors on a regular basis to
10
promote theirupcoming films through local, regional and national programs that are exclusive to our theatres. These programs may involve customer contests that include exclusive giveaways, cross-promotions with the media and other third parties and other means to increaseimpact patronage for a particular filmfilms showing at our theatres.
CineMode,We interact with guests every day on social media platforms, such as Facebook, on which we recently reached nine million followers, Twitter and Instagram. Through social media, we provide relevant information, quick access to advanced ticketing information and upcoming movies and events, as well as to respond to guest feedback. Guests can also utilize social media to ask us questions regarding their local Cinemark theatre offerings, movie-related information or to provide suggestions.
We launched a subscription membership program for our domestic circuit in December 2017. Cinemark Movie Club offers guests a monthly fixed-price 2D ticket, member-pricing for a companion ticket and concession and other transaction discounts. Cinemark Movie Club is a function within the app we developed,unique option to reward our loyal guests and allows patrons the opportunityus to stay informed of our frequent guests’ preferences.
We offer a free domestic loyalty program to our guests, called Connections, which was launched in 2016. Connections allows our guests to earn points for different types of transactions as tracked through our Cinemark smart phone app. Points can then be redeemed for tickets, concession items and discounts, as well as unique and limited edition experiential rewards while being courteous during a show. Our innovative technology was designedthat relate to address texting and other cell phone distractions, which is the number one complaint of movie-goers. While in CineMode, the phone’s screen is automatically dimmed and patrons are prompted to silence their volume. If CineMode is enabled for the duration of the movie, patrons are rewarded with exclusive digital rewards and offers that can be usedfilms currently playing at their next visit to Cinemark. CineMode connects us with our patrons and provides an opportunity for us to further expand our relationships with the studios and our vendors through promotions.theatres.
We also have loyalty programs in somemost of our international markets that either allow customers to pay a nominal fee for aan annual membership card that provides them with certain admissions and concession discounts.discounts or that allows guests to earn loyalty points for each purchase. Similar to the Connections program, our points-based international programs offer discounts on movie tickets and concessions. Our global loyalty programs put us in direct contact with our guests and provides additional opportunities for us to partner with the studios and our vendors through targeted promotions.
Our domestic and international marketing departments also focus on expanding ancillary revenue, which includes the sale of our gift cards and our SuperSaver discount tickets. We generally market these programs to businesses as an employee-incentive or rewards program. Our marketing departments also coordinate the use of our auditoriums, generally during off-peak times, for corporate meetings, private movie screenings, brand and product launches, education and training sessions or other private events, which contribute to our ancillary revenue.
Competition
We are one of the leaders in the motion picture exhibition industry. We compete against local, regional, national and international exhibitors with respect to attracting patrons,guests, licensing films and developing new theatre sites. Our primary U.S. competitors include Regal AMC and Carmike Cinemas, Inc.AMC and our primary international competitors, which vary by country, include Cinépolis, Cine Colombia, CinePlanet, Kinoplex (GSR), and Araujo.
We are generally able to book films without regard to the film bookings of other exhibitors at approximately 93%many of our theatres. In competitive film licensing zones, the distributor allocates itscertain limited situations, distributors allocate movies to only one theatre in a market generally based on demographics, the conditions, capacity and grossing potential of each theatre, and the terms of exhibition. In all theatres, our success in attracting patrons dependsguests can depend on customer service quality, location, theatre capacity, quality of projection and sound equipment, film showtime availability customer service quality, and ticket prices.
We compete for new theatre sites with other movie theatre exhibitors as well as other entertainment venues. Securing a potential site depends upon factors such as committed investment and resources, theatre design and capacity, revenue and patron potential, and financial stability.
We also face competition for patrons from a number of other motion picture exhibition delivery systems,alternative film distribution channels, such as digital downloads, video on-demand, pay-per-view television, DVDs, SVOD, network and syndicated television. We also face competition from other forms of entertainment competing for the public’s leisure time and disposable income, such as family entertainment centers, concerts, theme parks and sporting events.
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Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most successful motion pictures have been released during summer months in the summer,U.S., extending from May to July, and during the holiday season, extending from early November through year-end. The timing of releases, however, has become less pronounced as distributors have begun releasing content more evenly throughout the year. In our Latin American markets, while Hollywood content has similar release dates as in the U.S., the local holidays and seasons can vary. The unexpected emergence of a hit film during other periods can alterimpact this seasonality trend. The timing and quality of such film releases can have a significant impact on our results of operations, and the results of one quarterperiod are not necessarily indicative of results for the next quarterfollowing period or for the same period in the following year.
Corporate Operations
Our worldwide headquarters, referred to as the Cinemark Service Center, is located in Plano, Texas. Personnel at our corporate headquartersthe Cinemark Service Center provide oversight and support for our domestic and international theatres, including our executive team and department heads in charge of film licensing, food and beverage, theatre operations, theatre construction and maintenance, real estate, human resources, marketing, legal, finance, accounting, tax audit and information technology. Our U.S. operations are divided into nineteencomprised of twenty regions, each of which is headed by a region leader.regional vice president. We have eightnine regional offices in Latin America responsible for the local management of theatres in fourteenfifteen countries (Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala and Curacao are operatedmanaged out of one Central American regional office). Each regional office is headed by a general manager with additional personnel responsible for film licensing, marketing, human resources, information technology, operations and accounting.finance. We have divisional chief financial officers in Brazil and Argentina which are our two largest international markets.and a regional chief financial officer located in Chile that oversees Chile, Bolivia and Paraguay.
Employees
We have approximately 19,30020,000 employees in the U.S., approximately 19%21% of whom are full time employees and 81%79% of whom are part time employees. We have approximately 9,0009,500 employees in our international markets, approximately 37%78% of whom are full time employees and approximately 63%22% of whom are part time employees. Due to the seasonal nature of our business as discussed above, our headcount can vary throughout the year, depending on the timing and success of movie releases. Some of our international locations are subject to union regulations. We regard our relations with our employees to be satisfactory.
Regulations
The distribution of motion pictures is largely regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. The manner in which we can license films from certain major film distributors is subject tohas been influenced by consent decrees resulting from these cases. Consent decrees bind certain major film distributors and require the films of such distributors to be offered and licensed to exhibitors, including Cinemark, on a theatre-by-theatre and film-by-film basis. Consequently, exhibitors cannot enter into long-term arrangements with major distributors, but must negotiate for licenses on a theatre-by-theatre and film-by-film basis.
We are subject to various general regulations applicable to our operations including the Americans with Disabilities Act of 1990, or the ADA, and regulations recently issued by the U.S. Food and Drug Administration that require nutrition labels for certain menu items. Our domestic and international theatre operations are also subject to federal, state and local laws governing such matters as wages, working conditions, citizenship, health and sanitation requirements and various business licensing and permitting.
Financial Information About Geographic Areas
We currently have operations in the U.S., Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, Bolivia, Curacao, and CuracaoParaguay, which are reflected in the consolidated financial statements. See Note 1817 to the consolidated financial statements for segment information and financial information by geographic area.
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Our business depends on film production and performance.
Our business depends on both the availability of suitable films for exhibition in our theatres and the success of those films in our markets. PoorReduced volume of film releases, poor performance of films, the disruption in the production of films due to events such as a strike by directors, writers or actors, a reduction in financing options for the film distributors, or a reduction in the marketing efforts of the film distributors to promote their films could have an adverse effect on our business by resulting in fewer patrons and reduced revenues.
Our results of operations fluctuate on a seasonal basis.
Our results of operations vary from period to period based upon the quantity and quality of the motion pictures that we show in our theatres. The major film distributors generally release the films they anticipate will be most successful during the summer and holiday seasons. Consequently, we typically generate higher revenues during these periods. The timing of releases, however, has become less pronounced as distributors have begun releasing content more evenly throughout the year. In our Latin American markets, while Hollywood content has similar release dates as in the U.S., the local holidays and seasons can vary. The unexpected emergence of a successful film during other periods or the failure of an expected success at a key time could alter this seasonality trend. Due to the dependency on the success of films released from one period to the next, results of operations for one period may not be indicative of the results for the following period or the same period in the following year.
A deterioration in relationships with film distributors could adversely affect our ability to obtain commercially successful films.
We rely on the film distributors to supply the films shown in our theatres. The film distribution business is highly concentrated, with sixseven major film distributors accounting for approximately 84.4%90% of U.S. box office revenues and 4648 of the top 50 grossing films during 2015.2018. Numerous antitrust cases and consent decrees resulting from the antitrust cases impact the distribution of films. Film distributors license films to exhibitors on a theatre-by-theatre and film-by-film basis. Consequently, we cannot guarantee a supply of films by entering into long-term arrangements with major distributors. We are therefore required to negotiate licenses for each film and for each theatre. A deterioration in our relationship with any of the seven major film distributors could adversely affect our ability to obtain commercially successful films and to negotiate favorable licensing terms for such films, both of which could adversely affect our business and operating results.
We face intense competition for patrons and films which may adversely affect our business.
The motion picture exhibition industry is highly competitive. We compete against local, regional, national and international exhibitors in many of our markets. We compete for both patrons and licensing of films. In markets where we do not face nearby competitive theatres, there is a risk of new theatres being built. The degree of competition for patrons is dependent upon such factors as location, theatre capacity, presentation quality, of projection and sound equipment, film showtime availability, customer service quality, products and amenities offered, and ticket prices. The principal competitive factors with respect to film licensing include the theatre’s location and its demographics, the condition, capacity and grossing potential of each theatre, and licensing terms. We also face competition from new concept theatres such as dine-in theatres and tavern style theatres that open in close proximity to our conventional theatres. If we are unable to attract patrons or to license successful films, our business may be adversely affected.
An increase in the use of alternative film distribution channels or other competing forms of entertainment may reduce movie theatre attendance and limit revenue growth.
We face competition for patrons from a number of alternative film distribution channels, such as digital downloads, video on-demand, pay-per-view television, DVDs, SVOD, network and syndicated television. Some of these distribution channels have seen growth in production in recent years. We also compete with other forms of entertainment, such as family entertainment centers, concerts, theme parks, gaming and sporting events, for our patrons’ leisure time and disposable income. A significant increase in popularity of these alternative film distribution channels, competing forms of entertainment or improvements in technologies available at home could have an adverse effect on our business and results of operations.
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Our results of operations may be impacted by shrinking video and digital releasewindows.
Over the last decade, theThe average video and digital release window, which represents the time that elapses from the date of a film’s theatrical release to the date a film is available to consumers at home, has decreased frombeen approximately six months to approximately three to four months.ninety days for the past several years. If patrons choose to wait for an in-home release rather than attend a theatre to view the film, it may adversely impact our business and results of operations, financial condition and cash flows. Film studios occasionally offer consumers a premium video on-demand option for certain films shortly after the theatrical release. These release windows, which are determined by the studios, may shrink further or be eliminated altogether, which could have an adverse impact on our business and results of operations.
General political, social and economic conditions can adversely affect our attendance.
Our results of operations are dependent on general political, social and economic conditions, and the impact of such conditions on our theatre operating costs and on the willingness of consumers to spend money at movie theatres. If consumers’ discretionary income declines asduring a resultperiod of an economic downturn or political uncertainty, our operations could be adversely affected. If theatre operating costs, such as utility costs, increase due to political or economic changes, our results of operations could be adversely affected. Political events, such as terrorist attacks, and health-related epidemics, such as flu outbreaks, could cause people to avoid our theatres or other public places where large crowds are in attendance.attendance, which could adversely affect our results of operations. In addition, a natural disaster, such as a hurricane or an earthquake, could impact our ability to operate certain of our theatres, which could adversely affect our results of operations.
Our foreign operations are subject to adverse regulations, economic instability and currency exchange risk.
We have 176205 theatres with 1,2781,462 screens in fourteenfifteen countries in Latin America. Brazil represented approximately 10.2%9% of our consolidated 20152018 revenues. Governmental regulation of the motion picture industry in foreign markets differs from that in the United States.U.S. Changes in regulations affecting prices and quota systems requiring the exhibition of locally-produced films and restrictions on ownership of property may adversely affect our international operations. Our international operations are subject to certain political, economic and other uncertainties not encountered by our domestic operations, including risks of severe economic downturns and high inflation. We also face risks of currency fluctuations, hard currency shortages and controls of foreign currency exchange and cash transfers to the U.S., all of which could have an adverse effect on the results of our operations.
We have substantial long-term lease and debt obligations, which may restrict our ability to fund current and future operations and that restrict our ability to enter into certain transactions.
We have, and will continue to have, significant long-term debt service obligations and long-term lease obligations. As of December 31, 2015,2018, we had $1,814.6$1,809.3 million in long-term debt obligations, $227.7$259.5 million in capital lease obligations and $1,699.9$1,784.5 million in long-term operating lease obligations. Our substantial lease and debt obligations pose risk by:
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Our ability to make scheduled payments of principal and interest with respect to our indebtedness will depend on our ability to generate positive cash flows and on our future financial results. Our ability to generate positive cash flows is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. We may not be able to continue to generate cash flows at current levels, or guarantee that future borrowings will be available under our senior secured credit facility, in an amount sufficient to enable us to pay our indebtedness. If our cash flows and capital resources are insufficient to fund our lease and debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to take any of these actions, and these actions may not be successful or permit us to meet our scheduled debt service obligations and these actions may be restricted under the terms of our existing or future debt agreements, including our senior secured credit facility.
If we fail to make any required payment under the agreements governing our leases and indebtedness or fail to comply with the financial and operating covenants contained in them, we would be in default, and as a result, our debt holders would have the ability to require that we immediately repay our outstanding indebtedness and the lenders under our senior secured credit facility could terminate their commitments to lend us money and foreclose against the assets securing their borrowings. We could be forced into bankruptcy or liquidation. The acceleration of our indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-default and cross-acceleration provisions. If our indebtedness is accelerated, we may not be able to repay our indebtedness or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our debt holders require immediate payment, we may not have sufficient assets to satisfy our obligations under our indebtedness.
We are rated by nationally recognized rating agencies. The rating scales and methodologies used to derive individual ratings may not be ablevary from agency to generate additional revenues or continue to realize value from our investment in NCM.
As of December 31, 2015, we had an ownership interest in NCM of approximately 19%. We receive a monthly theatre access fee under our Exhibitor Services Agreement with NCM and weagency. Credit ratings are entitled to receive mandatory quarterly distributions of excess cash from NCM. During the years ended December 31, 2014 and 2015, the Company received approximately $9.2 million and $11.3 million in other revenues from NCM, respectively, and $18.5 million and $18.1 million in cash distributions in excessissued by credit rating agencies based on evaluations of our investmentability to pay back our outstanding debt and the likelihood that we would default on that debt prior to its maturity. The credit ratings issued by the rating agencies represent the rating agency's evaluation of both qualitative and quantitative information for our company. The credit ratings that are issued are based on the rating agency’s judgment and experience in NCM, respectively. Cinema advertising isdetermining what information should be considered in giving a small componentrating to a particular company. Ratings are always subject to change and there can be no assurance that our current ratings will continue for any given period of time. A downgrade of our debt ratings, depending on the U.S. advertising market and therefore, NCM competes with larger, more established and well known media platforms such as broadcast radio and television, cable and satellite television, outdoor advertising and Internet portals. In-theatre advertising may not continueextent, could increase the cost to attract advertisers or NCM’s in-theatre advertising format may not continue to be received favorably by theatre patrons. If NCM is unable to continue to generate consistent advertising revenues, its results of operations may be adversely affected and our investment in and distributions and revenues from NCM may be adversely impacted.borrow funds.
A failure to adapt to future technological innovations could impact our ability to compete effectively and could adversely affect our results of operations.
While we continue to implement the latestinvest in technological innovations, such as 3-D, D-BOXmotion seats and satellite distribution technologies, new technological innovations continue to impact our industry. If we are unable to respond to or invest in changes in technology and the technological preferences of our customers, we may not be able to compete with other exhibitors or other entertainment venues, which could adversely affect our results of operations.
We are subject to uncertainties relating to future expansion plans, including our ability to identify suitable acquisition candidates or new theatre site locations, and to obtain financing for such activities on favorable terms or at all.
We have greatly expanded our operations over the last decade through targeted worldwide theatre development and acquisitions. We will continue to pursue a strategy of expansion that will involve the development of new theatres and may involve acquisitions of existing theatres and theatre circuits both in the U.S. and internationally. There is significant competition for new site locations and for existing theatre and theatre circuit acquisition opportunities. As a result of such competition, we may not be able to acquire attractive site locations, existing theatres or theatre circuits on terms we consider acceptable. The pace of our growth may also be impacted by delays in site development caused by other parties. Acquisitions and expansion opportunities may divert a significant amount of management’s time away from the operation of our business. Growth by acquisition also involves risks relating to difficulties in integrating the operations and personnel of acquired companies and the potential loss of key employees of acquired companies. Our expansion strategy may not result in improvements to our business, financial condition, profitability, or cash flows. Further, our expansion programs may require financing above our existing borrowing capacity and operating cash flows. We may not be able to obtain such financing or ensure that such financing will be available to us on acceptable terms or at all.
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If we do not comply with the ADA and the safe harbor framework included in the consent order we entered into with the Department of Justice, or the DOJ, we could besubject to further litigation.
Our theatres must comply with Title III of the ADA and analogous state and local laws. Compliance with the ADA requires among other things that public facilities “reasonably accommodate” individuals with disabilities and that new construction or alterations made to “commercial facilities” conform to accessibility guidelines unless “structurally impracticable” for new construction or technically infeasible for alterations. On November 15, 2004, Cinemark and the Department of Justice, or DOJ entered into a consent order, which was filed with the U.S. District Court for the Northern District of Ohio, Eastern Division. Under the consent order, the DOJ approved a safe harbor framework for us to construct all of our future stadium-style movie theatres. The DOJ has stipulated that all theatres built in compliance with the consent order will comply with the wheelchair seating requirements of the ADA. If we fail to comply with the ADA, remedies could include imposition of injunctive relief, fines, awards for damages to private litigants and additional capital expenditures to remedy non-compliance. Imposition of significant fines, damage awards or capital expenditures to cure non-compliance could adversely affect our business and operating results.
We may be subject to increased labor and benefits costs.
In the U.S., we are subject to United States federal and state laws governing such matters as minimum wages, working conditions and overtime. We are also subject to union regulations in certain of our international markets, which can specify wage rates as well as minimum hours to be paid to certain employees. As federal and state minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees, but also the wages paid to employees at wage rates that are above minimum wage. Labor shortages, increased employee turnover and health care mandates could also increase our labor costs. This in turn could lead us to increase prices, which could impact our sales. Conversely, if competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our results of operations may be adversely impacted. We are also subject to union regulations in certain of our international markets, which can specify wage rates as well as minimum hours to be paid to certain employees. As union wage rates and other requirements change, our results of operations could be adversely affected.
We are subject to impairment losses due to potential declines in the fair value of our assets.
We have a significant amount of long-lived assets. We evaluate long-lived assets for impairment at the theatre level, therefore if a theatre is directly and individually impacted by increased competition, adverse changes in market demographics, or adverse changes in the development or condition of the areas surrounding the theatre, we may record impairment charges to reflect the decline in estimated fair value of that theatre.
We also have a significant amount of goodwill and tradename intangible assets. Declines in our stock price or market capitalization, declines in our attendance due to increased competition in certain regions and/or countries or economic factors that lead to a decline in attendance in any given region or country could result in impairments of goodwill and our intangible assets. As of December 31, 2015, we performed a qualitative analysis on our goodwill and tradename intangible assets and determined that it is not more likely than not that the fair values of such assets are below their respective carrying values.
A credit market crisis may adversely affect our ability to raise capital and may materially impact our operations.
Severe dislocations and liquidity disruptions in the credit markets could materially impact our ability to obtain debt financing on reasonable terms or at all. The inability to access debt financing on reasonable terms could materially impact our ability to make acquisitions, invest in technology innovations or significantly expand our business in the future.
Legislative or regulatory initiatives related to global warming/climate change concerns may negatively impact our business.
Recently, there has been an increasing focus and continuous debate on global climate change including increased attention from regulatory agencies and legislative bodies. This increased focus may lead to new initiatives directed at regulating an as yet unspecified array of environmental matters. Legislative, regulatory or other efforts in the U.S. to combat climate change could result in future increases in the cost of raw materials, taxes, transportation and utilities for our vendors and for us which would result in higher operating costs for the Company. Also, compliance of our theatres and accompanying real estate with new and revised environmental, zoning, land-use or building codes, laws, rules or regulations, could have a material and adverse effect on our business. However, we are unable to predict at this time, the potential effects, if any, that any future environmental initiatives may have on our business.
We may be subject to liability under environmental laws and regulations.
We own and operate a large number of theatres and other properties within the U.S. and internationally, which may be subject to various foreign, federal, state and local laws and regulations relating to the protection of the environment or human health. Such environmental laws and regulations include those that impose liability for the investigation and remediation of spills or releases of hazardous materials. We may incur such liability, including for any currently or formerly owned, leased or operated property, or for any site, to which we may have disposed, or arranged for the disposal of, hazardous materials or wastes. Certain of these laws and regulations may impose liability, including on a joint and several liability, which can result in a liable party being obliged to pay for greater than its share, regardless of fault or the legality of the original disposal. Environmental conditions relating to our properties or operations could have an adverse effect on our business and results of operations and cash flows.
Legislative or regulatory initiatives related to global warming/climate change concerns may negatively impact our business.16
Recently, there has been an increasing focus and continuous debate on global climate change including increased attention from regulatory agencies and legislative bodies. This increased focus may lead to new initiatives directed at regulating an as yet unspecified array of environmental matters. Legislative, regulatory or other efforts in the U.S. to combat climate change could result in future increases in the cost of raw materials, taxes, transportation and utilities for our vendors and for us which would result in higher operating costs for the Company. Also, compliance of our theatres and accompanying real estate with new and revised environmental, zoning, land-use or building codes, laws, rules or regulations, could have a material and adverse effect on our business. However, we are unable to predict at this time, the potential effects, if any, that any future environmental initiatives may have on our business.
Cyber security threats and our failure to protect our electronically stored data could adversely affect our business.
We collect, use, store and maintain electronic information and data necessary to conduct our business, including confidential and proprietary information of the company, our customers, and our employees. Data maintained in electronic form isWe also rely on the availability of information technology systems to operate our business, including for communications, receiving and displaying movies, ticketing, guest services, payments, and other general operations. We rely on some of our vendors to store and process certain data and to manage, host, and/or provide some of our information technology systems. Because of the scope and complexity of our information technology systems, our reliance on vendors to provide, support and protect our systems and data, and the constantly evolving cyber-threat landscape, our information technology systems are subject to the risk of intrusion,disruption, failure, unauthorized access, cyber-terrorism, human error, misuse, tampering, theft, and theft. Whileother cyber-attacks. These or similar events, whether accidental or intentional, could result in theft, unauthorized access or disclosure, loss, fraudulent or unlawful use of customer, employee or company data, which could harm our reputation or result in a loss of business, as well as remedial and other costs, fines, investigations, enforcement actions or lawsuits. These or similar events could also lead to an interruption in the operation of our systems resulting in business impact, including loss of business. Those same scope, complexity, reliance, and changing cyber-threat landscape factors could also affect our ability to adapt to and comply with changing regulations and contractual obligations applicable to data security and privacy, which are increasingly demanding, both in the United States and in other jurisdictions where we operate. In order to address these risks, we have adopted industry-accepted security measures and technology, operate a security program, and work continuously to protect the confidentialevaluate and proprietary information,improve our security posture. However, the development and maintenance of these systems isand programs are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. As such, we maythere can be unable to anticipate and implement adequate preventive measuresno assurance that these or similar events will not occur in time. This may adversely affectthe future or will not have an adverse effect on our business including exposure to government enforcement actions and private litigation, and our reputation with our customers and employees may be injured.results of operation. In addition to Company-specific cyber threats or attacks,events, our business and results of operations could also be impacted by breachescyber-related events affecting our peers and partners within the entertainment industry, as well as other retail companies. We maintain insurance designed to provide coverage for cyber risks related to what we believe to be adequate and collectible insurance in the event of the theft, loss, fraudulent or unlawful use of customer, employee or company data, but the foregoing events or future events could result in costs and business impacts which may not be covered or may be in excess of any available insurance that we may have procured. As a result, future events could have a material impact on our business and adversely affect our financial condition and results of operations.
Product recalls and associated costs could adversely affect our reputation and financial condition.
We are resellers of food and weWe may be found liable if the consumption of any of the products we sell causes illness or injury. We are also subject to recall by product manufacturers or if the food products become contaminated. Recalls could result in losses due to the cost of the recall, the destruction of the product and lost sales due to the unavailability of the product for a period of time.
Changes in privacy laws could adversely affect our ability to market our products effectively.
Our cinemasWe rely on a variety of direct marketing techniques, including email marketing. Any expansion on existing and/or new laws and regulations regarding marketing, solicitation or data protection could adversely affect the continuing effectiveness of our email and other marketing techniques and could result in changes to our marketing strategy which could adversely impact our attendance levels and revenues.
We are subject to complex taxation and could be subject to changes in our tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities.
We are subject to many different forms of taxation both in the U.S. and in the foreign jurisdictions where we operate. The tax authorities may not agree with the determinations that we made and such disagreements could result in lengthy legal disputes and, ultimately, in the payment of substantial amounts for tax, interest and penalties, which could have a material impact on our results. Additionally, current economic and political conditions make tax rates in any jurisdiction, including the U.S., subject to significant change. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. If the Company’s
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effective tax rates were to increase, or if the ultimate determination of the Company’s taxes owed in the U.S. or foreign jurisdictions is for an amount in excess of amounts previously accrued, the Company’s operating results, cash flows, and financial condition could be adversely affected.
None.
United StatesWe may not be able to generate additional revenues or continue to realize value from our investment in NCM.
As of December 31, 2015,2018, we owned 39,518,644 common units of NCM, which represented an ownership interest in NCM of approximately 25%. We receive a monthly theatre access fee under our Exhibitor Services Agreement with NCM and we are entitled to receive mandatory quarterly distributions of excess cash from NCM. During the years ended December 31, 2016, 2017 and 2018, the Company received approximately $11.0 million, $11.3 million and $12.1 million in other revenues from NCM, respectively, $14.2 million, $17.4 million and $22.2 million in cash distributions recorded as a reduction of our investment in NCM, respectively, and $14.7 million $16.4 million, $15.4 million in cash distributions in excess of our investment in NCM, respectively. Cinema advertising is a small component of the U.S. advertising market and therefore, NCM competes with larger, more established and well known media platforms such as broadcast radio and television, cable and satellite television, outdoor advertising and Internet portals. In-theatre advertising may not continue to attract advertisers or NCM’s in-theatre advertising format may not continue to be received favorably by theatre patrons. If NCM is unable to continue to generate consistent advertising revenues, its results of operations may be adversely affected and our investment in and distributions and revenues from NCM may be adversely impacted.
Each of our common units in NCM is convertible into one share of NCM, Inc. common stock. As of December 31, 2018, the estimated fair value of our investment in NCM was approximately $256.1 million based on NCM, Inc.’s stock price as of December 31, 2018 of $6.48 per share, which was less than our carrying value of $275.6 million. We do not believe that the decline in NCM, Inc.’s stock price is other than temporary and therefore, we did not record an impairment of our investment in NCM during the year ended December 31, 2018. The market value of NCM, Inc.’s stock price may continue to vary due to the performance of the business, industry trends, general and economic conditions and other factors. If NCM, Inc.’s stock price continues to decline or stays at a level below our carrying value for an extended period of time, we may record an impairment in our investment.
We are subject to impairment losses due to potential declines in the fair value of our assets.
We have a significant amount of long-lived assets. We evaluate long-lived assets for impairment at the theatre level. Therefore, if a theatre is directly and individually impacted by increased competition, adverse changes in market demographics, or adverse changes in the development or condition of the areas surrounding the theatre, we may record impairment charges to reflect the decline in estimated fair value of that theatre.
We also have a significant amount of goodwill and tradename intangible assets. Declines in our stock price or market capitalization, declines in our attendance due to increased competition in certain regions and/or countries or economic factors that lead to a decline in attendance in any given region or country could result in impairments of goodwill and our intangible assets.
Item 1B. Unresolved Staff Comments
None.
United States
As of December 31, 2018, in the U.S., we operated 295300 theatres with 3,9043,978 screens pursuant to leases and own the land and building for 4241 theatres with 614608 screens. Our leases are generally entered into on a long-term basis with terms, including optional renewal periods, generally ranging from 20 to 45 years. As of December 31, 2015,2018, approximately 8.1%8% of our theatre leases in the U.S., covering 2425 theatres with 177197 screens, have remaining terms, including optional renewal periods, of less than six years. Approximately 7.5%8% of our theatre leases in the U.S., covering 2225 theatres with 229326 screens, have remaining terms, including optional renewal periods, of between six and 15 years and approximately 84.4%84% of our theatre leases in the U.S., covering 249250 theatres with 3,4983,455 screens, have
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remaining terms, including optional renewal periods, of more than 15 years. The leases generally provide for a fixed monthly minimum rent payment, with certain leases also subject to additional percentage rent if a target annual revenue level is achieved. We currently own an office building in Plano, Texas, which is our worldwide headquarters. We also lease office space in Frisco, Texas and McKinney, Texas for theatre support and maintenance personnel.
International
As of December 31, 2015,2018, internationally, we operated 176205 theatres with 1,2781,462 screens, all of which are leased. Our international leases are generally entered into on a long term basis with terms, including optional renewal periods, generally ranging from 10 to 30 years. The leases generally provide for contingent rental based upon operating results with an annual minimum. As of December 31, 2015,2018, approximately 15%12% of our international theatre leases, covering 2624 theatres with 225208 screens, have remaining terms, including optional renewal periods, of less than six years. Approximately 47%48% of our international theatre leases, covering 8299 theatres and 613720 screens, have remaining terms, including optional renewal periods, of between six and 15 years and approximately 38%40% of our international theatre leases, covering 6882 theatres and 440534 screens, have remaining terms, including optional renewal periods, of more than 15 years. The leases generally provide for a fixed monthly minimum rent payment, with certain leases also subject to additional percentage rent if a target annual revenue level is achieved. We also lease office space in seven regions in Latin America for our local management.
See Note 1716 to the consolidated financial statements for information regarding our minimum lease commitments. We periodically review the profitability of each of our theatres, particularly those whose lease terms are nearing expiration, to determine whether to continue its operations.
Joseph Amey, et al.Silken Brown v. Cinemark USA, Inc.,Case No. 3:13cv05669, In the United States District Court for the Northern District of California, San Francisco Division.Division. The case presents putative class action claims for damagespenalties and attorney’sattorney's fees arising from employeealleged violations of the California wage and hour claims under California law for alleged meal period, rest break, reporting time pay, unpaid wages, pay upon termination, and wage statements violations.statement law. The claims areclaim is also asserted as a representative action under the California Private Attorney General Act (“PAGA”). We deny(PAGA) for penalties. The Court granted class certification. The company denies the claims, denydenies that class certification is appropriate, denies that the plaintiff has standing to assert the claims alleged and deny that a PAGA representative action is appropriate, and are vigorously defending against the claims. We denyThe Company denies any violation of law; however, to avoid the cost and uncertainty associated with litigation the Company and the plaintiff entered into a Joint Stipulation of Class Action Settlement and Release of Claims (the “Settlement Agreement”) to fully and finally dismiss all claims that would be brought in the case. The Settlement Agreement must be approved by the Court. During the year ended December 31, 2018, the Company recorded a litigation reserve based on the proposed Settlement Agreement in loss on disposal of assets and other on the consolidated income statement.
Flagship Theatres of Palm Desert, LLC d/b/a Cinemas Palme D’Or v. Century Theatres, Inc., and Cinemark USA, Inc.; Superior Court of the State of California, County of Los Angeles. Plaintiff in this case alleges that the Company violated California antitrust and unfair competition laws by engaging in “circuit dealing” with various motion picture distributors and tortuously interfered with Plaintiff’s business relationships. Plaintiff seeks compensatory damages, trebling of those damages under California law, punitive damages, injunctive relief, attorneys’ fees, costs and planinterest. Plaintiff also alleges that the Company’s conduct ultimately resulted in closure of its theatre in June 2016. The Company denied the allegations. In 2008, the Company moved for summary judgment on Plaintiff’s claims, arguing primarily that clearances between the theatres at issue were lawful and that Plaintiff lacked proof sufficient to vigorously defend against allsupport certain technical elements of its antitrust claims. The trial court granted that motion and dismissed Plaintiff’s claims. Plaintiff appealed and, in 2011, the Court recently determinedof Appeal reversed, holding, among other things, that class certificationPlaintiff’s claims were not about the illegality of clearances but were focused, instead, on “circuit dealing.” Having re-framed the claims in that manner, the Court of Appeal held that the trial court’s decision to limit discovery to the market where the theatres at issue operated was an error, as “circuit dealing” necessarily involves activities in different markets. Upon return to the trial court, the parties engaged in additional, broadened discovery related to Plaintiff’s “circuit dealing” claim. Thereafter, the Company moved again for summary judgment on all of Plaintiff’s claims. That new motion for summary judgment was pending when, on or about April 11, 2014, the trial court granted the Company’s motion for terminating sanctions and entered a judgment dismissing the case with prejudice. Plaintiff then appealed that second dismissal, seeking to have the judgment
19
reversed and the case remanded to the trial court. The Court of Appeal issued a ruling on May 24, 2016, reversing the granting of terminating sanctions and instead imposed a lesser evidentiary and damages preclusion sanction. The case returned to the trial court on October 6, 2016. On May 10, 2018, after a five-week jury trial, the jury found no liability on one circuit dealing claim and awarded Plaintiff damages on the other claim, which are tripled for antitrust damage awards. Plaintiff would also be entitled to certain court costs and to seek at least some portion of its attorney’s fees. During the year ended December 31, 2018, the Company recorded a litigation reserve based on an estimate of the jury award, which is not appropriatereflected in loss on disposal of assets and determinedother on the consolidated income statement. The trial court denied a motion for a judgment notwithstanding the verdict and a motion for a new trial. The Company intends to appeal the judgment. Although the Company denies that a PAGA representative action is not appropriate. The plaintiff may appeal these rulings. We are unable toit engaged in any form of circuit dealing, it cannot predict the outcome of the litigationits pending motions or the range of potential loss.future appeals.
We received a Civil Investigative Demand or CID,(“CID”) from the Antitrust Division of the United States Department of Justice. The CID relates to an investigation under Sections 1 and 2 of the Sherman Act. We also received CIDs from the Antitrust Section of the Office of the Attorney General of the State of Ohio and later from other states regarding similar inquiries under state antitrust laws. The CIDs request us to answer interrogatories, and produce documents, or both, related to the investigation of matters including film clearances, potential coordination and/or communication with other major theatre circuits and related joint ventures. We intend to fully cooperate with all federal and state government agencies. Although we do not believe that we haveit has violated any federal or state antitrust or competition laws, we cannot predict the ultimate scope, duration or outcome of these investigations.
From time to time, we are involved in other various legal proceedings arising from the ordinary course of our business operations, such as personal injury claims, employment matters, landlord-tenant disputes, patent claims and contractual disputes, some of which are covered by insurance or by indemnification from vendors. We believe our potential liability with respect to these types of proceedings currently pending is not material, individually or in the aggregate, to our financial position, results of operations and cash flows.
20
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holder of Our Common Stock
There is no established public trading market for our common stock. As of December 31, 2015,2018, we had 1,500 shares of Class A common stock outstanding and 182,648 shares of Class B common stock outstanding, all of which were held by Cinemark Holdings, Inc.
Dividend Policy
During the years ended December 31, 20152016, 2017 and 2014,2018, we paid cash dividends of approximately $115.2$124.9 million, $134.5 million and $115.0$148.8 million, respectively, to our parent company, Cinemark Holdings, Inc. We also declared a noncash distribution to Cinemark Holdings, Inc. during the year ended December 31, 2015 of approximately $17.9 million. Our ability to pay dividends is limited by the terms of our senior notes indentures our senior subordinated notes indenture and our senior secured credit facility, which restrict our ability to pay dividends and the ability of certain of our subsidiaries to pay dividends. See Note 9 to the consolidated financial statements for further discussion of our debt agreements. Furthermore, certain of our foreign subsidiaries currently have a deficit in retained earnings which prevents them from declaring and paying dividends from those subsidiaries. The declaration of future dividends will be at the discretion of our board of directors and will depend upon many factors, including our results of operations, financial condition, earnings, capital requirements, limitations in our debt agreements and legal requirements.
Item 6. Selected Financial Data
The following table provides our selected consolidated financial and operating data for the periods and at the dates indicated for each of the five most recent years ended December 31, 2015. During August 2011, we acquired ten theatres with 95 screens in Argentina. During May 2013, we acquired 32 theatres with 483 screens in the U.S. The results of operations for these theatres are included in our consolidated results of operations beginning on the dates of the respective acquisitions. During November 2013, we sold our Mexico theatres, which included 31 theatres and 290 screens.2018. You should read the selected consolidated financial and operating data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes appearing elsewhere in this report. We adopted ASC Topic 606, Revenue Recognition, effective January 1, 2018. See Note 3 to the consolidated financial statements for a summary of the impact of adoption.
Year Ended December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Statement of Income Data: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Admissions | $ | 1,471,627 | $ | 1,580,401 | $ | 1,706,145 | $ | 1,644,169 | $ | 1,765,519 | ||||||||||
Concession | 696,754 | 771,405 | 845,168 | 845,376 | 936,970 | |||||||||||||||
Other | 111,232 | 121,725 | 131,581 | 137,445 | 150,120 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenues | 2,279,613 | 2,473,531 | 2,682,894 | 2,626,990 | 2,852,609 | |||||||||||||||
Film rentals and advertising | 798,606 | 845,107 | 919,511 | 883,052 | 976,590 | |||||||||||||||
Concession supplies | 112,122 | 123,471 | 135,715 | 131,985 | 144,270 | |||||||||||||||
Salaries and wages | 226,475 | 247,468 | 269,353 | 273,880 | 301,099 | |||||||||||||||
Facility lease expense | 276,278 | 281,615 | 307,851 | 317,096 | 319,761 | |||||||||||||||
Utilities and other | 259,703 | 280,670 | 305,703 | 308,445 | 324,851 | |||||||||||||||
General and administrative expenses | 125,428 | 146,442 | 163,134 | 148,588 | 154,052 | |||||||||||||||
Depreciation and amortization | 154,449 | 147,675 | 163,970 | 175,656 | 189,206 | |||||||||||||||
Impairment of long-lived assets | 7,033 | 3,031 | 3,794 | 6,647 | 8,801 | |||||||||||||||
(Gain) loss on sale of assets and other | 8,792 | 12,168 | (3,845 | ) | 15,715 | 8,143 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total cost of operations | $ | 1,968,886 | $ | 2,087,647 | $ | 2,265,186 | $ | 2,261,064 | $ | 2,426,773 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | $ | 310,727 | $ | 385,884 | $ | 417,708 | $ | 365,926 | $ | 425,836 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Interest expense | $ | 123,102 | $ | 123,665 | $ | 124,714 | $ | 113,698 | $ | 112,741 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | $ | 133,953 | $ | 172,784 | $ | 151,921 | $ | 195,769 | $ | 220,391 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income attributable to Cinemark USA, Inc. | $ | 131,928 | $ | 170,313 | $ | 149,843 | $ | 194,380 | $ | 218,532 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Other Financial Data: Ratio of earnings to fixed charges(1) Cash flow provided by (used for): Operating activities Investing activities Financing activities Capital expenditures Year Ended December 31, 2011 2012 2013 2014 2015 (Dollars in thousands) 2.02 x 2.45 x 2.24 x 2.42 x 2.69 x $ 390,884 $ 394,633 $ 309,362 $ 454,128 $ 455,225 (247,067 ) (234,311 ) (364,701 ) (253,339 ) (328,122 ) (78,020 ) 63,582 (75,346 ) (146,320 ) (150,509 ) (184,819 ) (220,727 ) (259,670 ) (244,705 ) (331,726 )
|
| Year Ended December 31, |
| |||||||||||||||||
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
| |||||
Statement of Income Data: |
| (Dollars in thousands) |
| |||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
| $ | 1,644,169 |
|
| $ | 1,765,519 |
|
| $ | 1,789,137 |
|
| $ | 1,794,982 |
|
| $ | 1,834,173 |
|
Concession |
|
| 845,376 |
|
|
| 936,970 |
|
|
| 990,103 |
|
|
| 1,038,788 |
|
|
| 1,108,793 |
|
Other |
|
| 137,445 |
|
|
| 150,120 |
|
|
| 139,525 |
|
|
| 157,777 |
|
|
| 278,769 |
|
Total revenues |
|
| 2,626,990 |
|
|
| 2,852,609 |
|
|
| 2,918,765 |
|
|
| 2,991,547 |
|
|
| 3,221,735 |
|
Film rentals and advertising |
|
| 856,388 |
|
|
| 945,640 |
|
|
| 962,655 |
|
|
| 966,510 |
|
|
| 999,755 |
|
Concession supplies |
|
| 131,985 |
|
|
| 144,270 |
|
|
| 154,469 |
|
|
| 166,320 |
|
|
| 180,974 |
|
Salaries and wages |
|
| 273,880 |
|
|
| 301,099 |
|
|
| 325,765 |
|
|
| 354,510 |
|
|
| 383,860 |
|
Facility lease expense |
|
| 317,096 |
|
|
| 319,761 |
|
|
| 321,294 |
|
|
| 328,197 |
|
|
| 323,316 |
|
Utilities and other |
|
| 335,109 |
|
|
| 355,801 |
|
|
| 355,926 |
|
|
| 355,041 |
|
|
| 448,070 |
|
General and administrative expenses |
|
| 148,588 |
|
|
| 154,052 |
|
|
| 140,637 |
|
|
| 150,911 |
|
|
| 162,640 |
|
Depreciation and amortization |
|
| 175,656 |
|
|
| 189,206 |
|
|
| 209,071 |
|
|
| 237,513 |
|
|
| 261,162 |
|
Impairment of long-lived assets |
|
| 6,647 |
|
|
| 8,801 |
|
|
| 2,836 |
|
|
| 15,084 |
|
|
| 32,372 |
|
Loss on disposal of assets and other |
|
| 15,715 |
|
|
| 8,143 |
|
|
| 20,459 |
|
|
| 22,812 |
|
|
| 38,702 |
|
Total cost of operations |
| $ | 2,261,064 |
|
| $ | 2,426,773 |
|
| $ | 2,493,112 |
|
| $ | 2,596,898 |
|
| $ | 2,830,851 |
|
Operating income |
| $ | 365,926 |
|
| $ | 425,836 |
|
| $ | 425,653 |
|
| $ | 394,649 |
|
| $ | 390,884 |
|
Interest expense |
| $ | 113,698 |
|
| $ | 112,741 |
|
| $ | 108,313 |
|
| $ | 105,918 |
|
| $ | 109,994 |
|
Net income |
| $ | 195,769 |
|
| $ | 220,391 |
|
| $ | 258,513 |
|
| $ | 267,482 |
|
| $ | 217,213 |
|
Net income attributable to Cinemark USA, Inc. |
| $ | 194,380 |
|
| $ | 218,532 |
|
| $ | 256,777 |
|
| $ | 265,643 |
|
| $ | 215,735 |
|
|
| Year Ended December 31, |
| |||||||||||||||||
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
| |||||
|
| (Dollars in thousands) |
| |||||||||||||||||
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
| $ | 454,128 |
|
| $ | 455,225 |
|
| $ | 462,259 |
|
| $ | 528,384 |
|
| $ | 556,299 |
|
Investing activities |
|
| (253,339 | ) |
|
| (328,122 | ) |
|
| (327,769 | ) |
|
| (410,476 | ) |
|
| (451,370 | ) |
Financing activities |
|
| (146,320 | ) |
|
| (150,509 | ) |
|
| (163,121 | ) |
|
| (157,429 | ) |
|
| (191,906 | ) |
Capital expenditures |
|
| (244,705 | ) |
|
| (331,726 | ) |
|
| (326,908 | ) |
|
| (380,862 | ) |
|
| (346,073 | ) |
As of December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 521,253 | $ | 742,095 | $ | 599,894 | $ | 638,841 | $ | 588,503 | ||||||||||
Theatre properties and equipment, net | 1,238,850 | 1,304,958 | 1,427,190 | 1,450,812 | 1,505,069 | |||||||||||||||
Total assets(2) | 3,495,522 | 3,822,000 | 4,107,480 | 4,133,116 | 4,127,632 | |||||||||||||||
Total long-term debt and capital lease obligations, including current portion (2) | 1,686,662 | 1,873,769 | 2,012,508 | 1,791,578 | 1,781,335 | |||||||||||||||
Equity | 1,025,293 | 1,096,212 | 1,104,281 | 1,136,723 | 1,113,251 |
Year Ended December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
Operating Data: | ||||||||||||||||||||
United States | ||||||||||||||||||||
Theatres operated (at period end) | 297 | 298 | 334 | 335 | 337 | |||||||||||||||
Screens operated (at period end) | 3,878 | 3,916 | 4,457 | 4,499 | 4,518 | |||||||||||||||
Total attendance (in 000s) | 158,486 | 163,639 | 177,156 | 173,864 | 179,601 | |||||||||||||||
International | ||||||||||||||||||||
Theatres operated (at period end) | 159 | 167 | 148 | 160 | 176 | |||||||||||||||
Screens operated (at period end) | 1,274 | 1,324 | 1,106 | 1,177 | 1,278 | |||||||||||||||
Total attendance (in 000s) | 88,889 | 100,084 | 99,402 | 90,009 | 100,499 | |||||||||||||||
Worldwide | ||||||||||||||||||||
Theatres operated (at period end) | 456 | 465 | 482 | 495 | 513 | |||||||||||||||
Screens operated (at period end) | 5,152 | 5,240 | 5,563 | 5,676 | 5,796 | |||||||||||||||
Total attendance (in 000s) | 247,375 | 263,723 | 276,558 | 263,873 | 280,100 |
|
| As of December 31, |
| |||||||||||||||||
|
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
| |||||
|
| (Dollars in thousands) |
| |||||||||||||||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 638,841 |
|
| $ | 588,503 |
|
| $ | 561,138 |
|
| $ | 522,415 |
|
| $ | 426,216 |
|
Theatre properties and equipment, net |
|
| 1,450,812 |
|
|
| 1,505,069 |
|
|
| 1,704,536 |
|
|
| 1,828,054 |
|
|
| 1,833,133 |
|
Total assets |
|
| 4,133,116 |
|
|
| 4,127,632 |
|
|
| 4,316,609 |
|
|
| 4,485,340 |
|
|
| 4,501,351 |
|
Total long-term debt, including current portion, net of unamortized debt issue costs |
|
| 1,791,578 |
|
|
| 1,781,335 |
|
|
| 1,788,112 |
|
|
| 1,787,480 |
|
|
| 1,780,611 |
|
Equity |
|
| 1,136,723 |
|
|
| 1,113,251 |
|
|
| 1,284,080 |
|
|
| 1,421,495 |
|
|
| 1,477,183 |
|
|
| Year Ended December 31, |
| |||||||||||||||||
Operating Data: |
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
| |||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end) |
|
| 335 |
|
|
| 337 |
|
|
| 339 |
|
|
| 339 |
|
|
| 341 |
|
Screens operated (at period end) |
|
| 4,499 |
|
|
| 4,518 |
|
|
| 4,559 |
|
|
| 4,561 |
|
|
| 4,586 |
|
Total attendance (in 000s) |
|
| 173,864 |
|
|
| 179,601 |
|
|
| 182,660 |
|
|
| 174,432 |
|
|
| 185,268 |
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end) |
|
| 160 |
|
|
| 176 |
|
|
| 187 |
|
|
| 194 |
|
|
| 205 |
|
Screens operated (at period end) |
|
| 1,177 |
|
|
| 1,278 |
|
|
| 1,344 |
|
|
| 1,398 |
|
|
| 1,462 |
|
Total attendance (in 000s) |
|
| 90,009 |
|
|
| 100,499 |
|
|
| 104,581 |
|
|
| 102,584 |
|
|
| 96,847 |
|
Worldwide |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatres operated (at period end) |
|
| 495 |
|
|
| 513 |
|
|
| 526 |
|
|
| 533 |
|
|
| 546 |
|
Screens operated (at period end) |
|
| 5,676 |
|
|
| 5,796 |
|
|
| 5,903 |
|
|
| 5,959 |
|
|
| 6,048 |
|
Total attendance (in 000s) |
|
| 263,873 |
|
|
| 280,100 |
|
| 287,241 |
|
|
| 277,016 |
|
|
| 282,115 |
|
Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations
The following discussion and analysis should be read in conjunction with the financial statements and accompanying notes included in this report. This discussion contains forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties and risk associated with these statements.
Overview
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 Curacao. We operated theatres in Mexico until November 15, 2013.Paraguay. As of December 31, 2015,2018, we managed our business under two reportable operating segments – U.S. markets and international markets. See Note 1817 to the consolidated financial statements.
Revenues and Expenses
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. Our relationshipNCM provides our domestic theatres with NCM has assisted usvarious forms of in expanding our offerings to domestic advertisers and broadening ancillary revenue sources such as digital video monitortheatre advertising. 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 our recently formed joint venture, AC JV, LLC. Our Flix Media initiative has also allowed us to expand our screen advertising and alternative content within our international circuit and to other international exhibitors.
Films leading the box office during the year ended December 31, 20152018 includedBlack Panther, Avengers: Infinity War, Incredibles 2, Jurassic World: Fallen Kingdom, Aquaman, Deadpool 2, Dr. Seuss’ The Grinch, Mission Impossible – Fallout, Ant-Man and the Wasp, Solo: A Star Wars Story, Venom, A Quiet Place, Crazy Rich Asians, Halloween, Bumblebee, Ralph Breaks the Internet, Fantastic Beasts: The Crimes of Grindelwald, Mary Poppins Returns, A Star is Born, Bohemian Rhapsody and other films, as well as the carryover of The Greatest Showman, Jumanji: Welcome to the Jungle and Star Wars: The Force Awakens, Jurassic World,Avengers: Age of Ultron,Hunger Games: Mockingjay Part II, Furious 7, American Sniper, 50 Shades of Grey,Inside Out,Minions,Spectre andMission: Impossible 5,among other films. Last Jedi.
Films scheduled for release during 20162019 include sequels such asAvengers: Endgame, Star Wars: Episode IX, The Lion King, Frozen 2, Toy Story 4, Aladdin, Captain America: Civil War,Batman V Superman: Dawn Of Justice,Finding Dory,Star Trek Beyond,and X-Men: Apocalypse; action films such asDeadpool; family films such asMarvel, It 2, Spider-Man: Far From Home,The Secret Life Ofof Pets,Zootopia,Alice Through The Looking Glass, andSing; 2, Joker, Dumbo and spin-off films such asRogue One: A Star Wars Storyand the Harry Potter spin-offFantastic Beasts And Where To Find Them, Godzilla 2 among other films.
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film rental costs as a percentage of revenues are generally higher for periods in which more blockbuster films are released. Film rental costs can also vary based on the length of a film’s run. Film rental rates are generally negotiated on a film-by-film and theatre-by-theatre basis. Advertising costs, which are expensed as incurred, are primarily fixed atrelated to campaigns for new and renovated theatres, loyalty and membership programs and brand advertising that vary depending on the theatre level as daily movie directories placed in newspapers represent the largest componenttiming of advertising costs. The monthly cost of these advertisements is based on, among other things, the size of the directory and the frequency and size of the newspaper’s circulation.such campaigns.
Concession supplies expense is variable in nature and fluctuates with our concession revenues. We purchase concession supplies to replace units sold.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 of our 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 revenueperformance 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 fee-ownedowned theatres.
23
Utilities and other costs include both fixed and variable costs and primarily includesconsist of utilities, expenses for projection and sound equipment maintenance and monitoring, property taxes, janitorial costs, repairs, and 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.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with generally accepted accounting principles in the U.S., or U.S. GAAP. As such, we are required to make certain estimates and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies, which we believe are the most critical to aid in fully understanding and evaluating our reported consolidated financial results, include the following:
Revenue and Expense Recognition
RevenuesOur patrons often have the option to purchase movie tickets well in advance of a movie showtime or right before the movie showtime, or at any point in between those two timeframes depending on seat availability. We recognize such admissions revenues when the showtime for a purchased movie ticket has passed. Concession revenues are recognized when admissions and concession sales are receivedmade at the box office.registers. Other revenues primarily consist of screen advertising.advertising 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. Screen advertising revenues are recognized over the period that the related advertising is delivered on-screen or in-theatre. We record proceeds from the sale ofsell gift cards and other advanced sale-type certificatesdiscount ticket vouchers, the proceeds from which are recorded as current liabilities. Revenues for gift cards and discount ticket vouchers are recognized when they are redeemed for movie tickets or concession items. We offer a subscription program in the U.S. whereby patrons can pay a monthly fee to receive a monthly credit for use towards a future movie ticket purchase. We record the monthly subscription program fees as current liabilities and record admissions revenues as the credits are redeemed for movie tickets. We also have loyalty programs in many of our locations that either have a prepaid annual membership fee or award points to customers as purchases are made. For those loyalty programs that have an annual membership fee, we recognize admissions or concession revenue when a holder redeems the card or certificate. We recognize unredeemed gift cards andfee collected as other advanced sale-type certificates as revenue only after such a periodrevenues over the term of time indicates,the membership. For those loyalty programs that award points to customers based on historical experience,their purchases, we record a portion of the likelihood of redemption is remote, andoriginal transaction proceeds as liabilities based on applicable lawsthe number of reward points issued to the customer and regulations. recognize revenues when the customer redeems such points.
In evaluatingMay 2014, the likelihoodFinancial 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 redemption,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. We adopted ASC Topic 606 effective January 1, 2018 under the modified retrospective method.
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Changes to the way in which we considerrecognize revenue resulted in the period outstanding, the level and frequencyfollowing impacts to our consolidated statements of activity, and the period of inactivity.income:
a) | Recording of incremental other revenue and interest expense related to the significant financing component of our Exhibitor Services Agreement (“ESA”) with NCM, LLC (“NCM”). See further discussion at Note 3 to the consolidated financial statements. |
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 our points-based loyalty programs, we estimated the values of the rewards expected to be redeemed by our customers for those points. The estimates are based on the rewards that have historically been offered under the loyalty programs, which we believe is representative of the rewards to be offered in the future. |
c) | Increase in other revenues and an increase in utilities and other costs 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. The deferred revenue – NCM is related to our ESA and Common Unit Adjustment agreement with NCM, under which our performance obligation is to provide NCM with exclusive access to its domestic theatres for purposes of in-theatre advertising over the term of the ESA. Such exclusivity, and therefore the satisfaction of our performance obligation, is provided to NCM evenly over time. As a result of the change in amortization method, we recorded a cumulative effect of accounting change adjustment of $40,526, net of taxes, in retained earnings on January 1, 2018. See Notes 3 and 4 to the consolidated financial statements. |
Film rental costs are accrued based on the applicable box office receipts and either firm terms or a sliding scale formula, which are generally established prior to the opening of the film, or estimates of the final settlement rate, which occurs at the conclusion of the film run, subject to the film licensing arrangement. Under a firm terms formula, we pay the distributor a percentage of box office receipts, which reflects either an aggregate rate for the life of the film or rates that decline over the term of the run. Under a sliding scale formula, we pay a percentage of box office revenues using a pre-determined matrix that is based upon box office performance of the film. The settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs. Estimates are based on the expected success of a film. The success of a film can typically be determined a few weeks after a film is released when initial box office performance of the film is known. If actual settlements are different than those estimates, film rental costs are adjusted at that time. Our advertising costs are expensed as incurred.
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 of our leases are subject to monthly percentage rent only, which is accrued each month based on actual revenues. Certain of our other theatres require payment of percentage rent in addition to fixed monthly rent if an annual target revenue level is achieved. Percentage rent expense is estimated and recorded for these theatres on a monthly basis if the theatre’s historical performance or forecasted performance indicates that the annual target revenue level will be reached. Once annual revenues are known, which is generally at the end of the year, the percentage rent expense is adjusted at that time. We record the fixed minimum rent payments on a straight-line basis over the lease term.
Theatre properties and equipment are depreciated using the straight-line method over their estimated useful lives. In estimating the useful lives of our theatre properties and equipment, we have relied upon our experience with such assets and our historical replacement period. We periodically evaluate these estimates and assumptions and adjust them as necessary. Adjustments to the expected lives of assets are accounted for on a prospective basis through depreciation expense. Leasehold improvements for which we pay and to which we have title are amortized over the lesser of useful life or the lease term.
25
Impairment of Long-Lived Assets
We review long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. We also perform a full quantitative impairment evaluation on an annual basis. We assess many factors including the following to determine whether to impair individual theatre assets:
the impact of recent theatre remodels or other substantial improvements;
available lease renewal options; and
Long-lived assets are evaluated for impairment on an individuala theatre basis, which we believe is the lowest applicable level for which there are identifiable cash flows. The impairment evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre’s useful life. The remainder of the theatre’s useful life correlates with the available remaining lease period, which includes the probability of the exercise of available renewal periods for leased properties and the lesser of twenty years or the building’s remaining useful life for fee owned properties. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, we then compare the carrying value of the asset group (theatre) with its estimated fair value. When estimated fair value is determined to be lower than the carrying value of the asset group (theatre), the asset group (theatre) is written down to its estimated fair value. Significant judgment is involved in estimating cash flows and fair value. Fair value is determined based on a multiple of cash flows, which was six and a half times for the evaluations performed during 2016, 2017 and 2018. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was six and a half times for the evaluations performed during 2013, 2014 and 2015. The long-lived asset impairment charges related to theatre properties recorded during each of the periods presented are 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 of Goodwill and Intangible Assets
We evaluate goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of the goodwill may not be fully recoverable. We evaluate goodwill for impairment at the reporting unit level and we have allocated goodwill to the reporting unit based on an estimate of its relative fair value. Management considers the reporting unit to be each of its nineteentwenty regions in the U.S. and seven of its international countries internationally (Honduras,with Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are considered one reporting unit)unit (the Company does not have goodwill recorded for all of its international locations). Under ASC Topic 350, Goodwill, Intangibles and Other (“ASC Topic 350”), we may perform a qualitative impairment assessment or a quantitative impairment assessment of our goodwill.
Goodwill impairment was evaluated using a two-step approach during 2013 and 2014, requiring the CompanyA quantitative analysis requires us to computeestimate the fair value of aeach reporting unit and compare it with its carrying value. If the carrying value of the reporting unit exceeds its estimated fair value, goodwill would be written down such that the carrying value would equal estimated fair value. Fair value is determined based on a second step ismultiple of cash flows, which was eight times for the evaluations performed to measure the potential goodwill impairment.during 2017 and 2018. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was eight times for the evaluations performed during 2013 and 2014. As of December 31, 2014, the estimated fair value of our goodwill exceeded their carrying values by at least 10%.
For the year ended December 31, 2015, we performed a qualitative goodwill impairment assessment on all reporting units except one, in accordance with ASU 2011-08Testing Goodwill for Impairment(“ASU 2011-08”). TheA qualitative assessment included
26
includes consideration of historical and expected future industry performance, our estimated future performance of the Company, current industry trading multiples and other economic factors. Based on thefactors, and a review of current carrying values compared to estimated fair values as determined during our most recent quantitative assessment.
We performed a qualitative assessment for all reporting units for the year ended December 31, 2016. We performed a quantitative goodwill impairment analysis for all reporting units during the year ended December 31, 2017. For the year ended December 31, 2018, we determined that it was not more likely than not thatperformed a quantitative goodwill assessment for three new domestic reporting units and a qualitative assessment for all other reporting units. As of December 31, 2018, the estimated fair value of theour goodwill for each reporting units were less than their carrying values. We performed the quantitative two-step approach on a new U.S. region that had not previously been assessed for goodwill impairment. The fair value for the new reporting unit was determined based on a multiple of estimated cash flows, which was eight times, and exceeded its carrying value by more than 10%, with the exception of one reporting unit, whose fair value exceeded its carrying value by approximately 9%. We did not record any goodwill impairment charges as a result of the assessments performed during the years ended December 31, 2016, 2017 and 2018.
Tradename intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. During 2013 and 2014,Under ASC Topic 350, we can elect to perform a qualitative or quantitative impairment assessment for our tradename intangible assets. A quantitative tradename impairment assessment includes comparing the carrying values of tradename assets to an estimated the fair value of our tradenamesvalue. Fair values are estimated by applying an estimated market royalty rate that could be charged for the use of our tradename to forecasted future revenues, with an adjustment for the present value of such royalties. If the estimated fair value is less than the carrying value, the tradename intangible asset is written down to its estimated fair value. Significant judgment is involved in estimating market royalty rates and long-term revenue forecasts. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected revenue performance and industry trends. As of December 31, 2014, the estimated fair value of our tradename intangible assets exceeded their carrying values by at least 10%. For the year ended December 31, 2015, the Company performed a qualitative tradename intangible asset impairment assessment in accordance with ASU 2011-08. TheA qualitative assessment included consideration ofconsiders our historical and forecasted revenues and changes in estimated royalty rates, and a comparison of current carrying values to estimated fair values from our most recent quantitative assessment.
During the year ended December 31, 2016, we performed a quantitative tradename impairment assessment for eachour tradename in Ecuador and performed a qualitative tradename impairment analysis for all other tradename intangible asset. Based onassets. During the year ended December 31, 2017, we performed quantitative tradename impairment evaluations for all tradename assets. During the year ended December 31, 2018, we performed a qualitative assessmenttradename impairment analysis. As a result of the analysis performed the Company determined that it was not more likely than not that the fair values ofduring each year, no impairment charges were recorded related to tradename intangible assets were less than their carrying values.for the years ended December 31, 2016, 2017 and 2018.
Income Taxes
We use an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for a year and the basis of assets and liabilities. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets unless it is more likely than not that such assets will be realized. Income taxes are provided on unremitted earnings from foreign subsidiaries unless such earnings are expected to be indefinitely reinvested. Income taxes have also been provided for potential tax assessments. The evaluation of an uncertain tax position is a two-step process. The first step is recognition: We determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position would be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements result in (1) a change in a liability for income taxes payable or (2) a change in an income tax refund receivable, a deferred tax asset or a deferred tax liability or both (1) and (2). We accrue interest and penalties on uncertain tax positions.
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 the U.S. corporate tax rate from 35 percent to 21 percent, (2) generally eliminated U.S. federal income taxes on dividends from foreign
27
subsidiaries, (3) a one-time transition tax on certain undistributed earnings of foreign subsidiaries, and (4) created new taxes on certain foreign-sourced earnings. As of December 31, 2018, the amounts recorded for the Tax Act are final for the 2017 transition tax, the re-measurement of deferred taxes, and our reassessment of valuation allowances.
Accounting for Investment in National CineMedia, LLC and Related Agreements
We have an investment in NCM. NCM operates a digital in-theatre network in the U.S. for providing cinema advertising and non-film events. Upon joining NCM, the Company and NCMwe entered into an Exhibitor Services Agreement (“ESA”), with NCM pursuant to which NCM provides advertising, promotion and event services to the Company’sour theatres. On February 13, 2007, National CineMedia, Inc., or NCM Inc., a newly formed entity that serves as a member and the sole manager of NCM, completed an initial public offering of its common stock. In connection with the NCM Inc. initial public offering, the Companywe amended itsour operating agreement and the Exhibitor Services Agreement, or ESA, with NCM and received proceeds related to the modification of the ESA and the Company’sour sale of certain of its shares in NCM. The ESA modification reflected a shift from circuit share expense under the prior Exhibitor Services Agreement, which obligated NCM to pay the Companyus a percentage of revenue, to a monthly theatre access fee, which significantly reduced the contractual amounts paid to the Company by NCM. The Company recorded the proceeds related to the ESA modification as deferred revenue, which is being amortized into other revenues over the life of the agreement using the units of revenue method.revenue. As a result of the proceeds received as part of the NCM, Inc. initial public offering, the Company had a negative basis in its original membership units in NCM (referred to herein as its Tranche 1 Investment). The Company does not recognize undistributed equity in the earnings on its Tranche 1 Investment until NCM’sNCM's future net earnings, less distributions received, surpass the amount of the excess distribution. The Company recognizes equity in earnings on its Tranche 1 Investment only to the extent it receives cash distributions from NCM. The Company believes that the accounting model provided by ASC 323-10-35-22 for recognition of equity investee losses in excess of an investor’sinvestor's basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution.
Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and Cinemark, AMC and Regal, collectively referred to as its Founding Members, annual adjustments to the common membership units are made primarily based on increases or decreases in the number of theatre screens operated and theatre attendance generated by each Founding Member. To account for the receipt of additional common units under the Common Unit Adjustment Agreement, the Company follows the guidance in ASC 323-10-35-29 (formerly EITF 02-18,Accounting for Subsequent Investments in an Investee after Suspension of Equity Loss Recognition) by analogy, which also refers to AICPA Technical Practice Aid 2220.14, which indicates that if a subsequent investment is made in an equity method investee that has experienced significant losses, the investor must determine if the subsequent investment constitutes funding of prior losses. The Company concluded that the construction or acquisition of new theatres that has led to the common unit adjustments equates to making additional investments in National CineMedia. The Company evaluated the receipt of the additional common units in National CineMedia and the assets exchanged for these additional units and has determined that the right to use its incremental new screens would not be considered funding of prior losses. The Company accounts for these additional common units (referred to herein as its Tranche 2 Investment) as a separate investment than its Tranche 1 Investment. The common units received are recorded at fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue. The deferred revenue is amortized over the remaining term of the ESA. The Tranche 2 Investment is accounted for following the equity method, with undistributed equity earnings related to its Tranche 2 Investment included as a component of equity in income of affiliates and distributions received related to its Tranche 2 Investment are recorded as a reduction of its investment basis.
Impact of Recent Accounting Developments
The Compensation CommitteeImpact of Cinemark Holdings, Inc.’s boardNew Revenue Recognition Standard
In May 2014, the 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 directors approved the Amended and Restated Employment Agreement of Mark Zoradi,revenue to which it expects to be effectiveentitled 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.
28
Impact of New Lease Accounting Standard
In February 19, 2016, (the “Amended Agreement”the FASB issued ASU 2016-02, Leases (Topic 842), (“ASU 2016-02”). The Amended Agreement amends Section 3.2(c) by providing thatpurpose of ASU 2016-02 is to provide financial statement users a better understanding of the Equity Awards (as definedamount, timing, and uncertainty of cash flows arising from leases. The adoption of ASU 2016-02 will result in the Amended Agreement) shall be at least 200%recognition of Mr. Zoradi’s base salarya right-of-use asset and providinga lease liability for most operating leases. New disclosure requirements include qualitative and quantitative information about the amounts recorded in the financial statements related to leases. 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 earliest period presented with the option to elect certain practical expedients. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”). In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provides an additional amount for personal expenses. The amendments conformtransition method to adopt ASU 2016-02. Under this new transition method, an entity initially applies ASU 2016-02 at the Amended Agreementadoption date and recognizes a cumulative-effect adjustment to the termsopening balance of Mr. Zoradi’s employment offerretained earnings in August 2015.
We adopted ASC Topic 842 and the related amendments in ASU 2016-02 and ASU 2018-11 (collectively referred to herein as “the New Leasing Standard”) effective January 1, 2019. We are finalizing our evaluation of the impact of the New Leasing Standard on our consolidated financial statements, and expect the most significant impacts to be as follows:
1. | We will recognize liabilities representing the present value of the remaining future minimum lease payments for all of its operating leases as of January 1, 2019. We estimate these liabilities will be between $1.4 billion and $1.7 billion. |
2. | We will recognize right of use assets for all of our operating leases equal to the liabilities calculated in (1) above, adjusted for the balances of long-term prepaid rent, favorable lease intangible assets, deferred lease expense, unfavorable lease liabilities and deferred lease incentive liabilities as of January 1, 2019. |
3. | We have theatre leases in which we were involved in construction that failed sale-leaseback accounting at the end of the construction period. These leases, which were accounted for as capital leases, will be derecognized upon adoption of the New Leasing Standard and evaluated to determine classification upon adoption. Some of these leases will be classified as operating leases upon adoption and, beginning in 2019, lease payments for these leases will be recorded as facility lease expense on the consolidated income statement. Previously, as capital leases, lease payments were classified as interest expense and reductions of the capital lease obligations. |
4. | For the capital leases derecognized as discussed in (3) above, we will write-off the net book value of the capital lease asset and capital lease liability, with the difference between those amounts resulting in an adjustment to beginning retained earnings as of January 1, 2019. |
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The following table sets forth, for the periods indicated, the amounts for certain items reflected in our consolidated statements of income along with each of those items as a percentage of revenues. During May 2013, we acquired 32 theatres with 483 screens in the U.S. The results of operations for these theatres are included in our consolidated results of operations beginning on the date of the acquisition. During November 2013, we sold our Mexico theatres, which included 31 theatres and 290 screens.
|
| Year Ended December 31, |
| |||||||||
|
| 2016 |
|
| 2017 |
|
| 2018 |
| |||
Operating data (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
| $ | 1,789.2 |
|
| $ | 1,795.0 |
|
| $ | 1,834.2 |
|
Concession |
|
| 990.1 |
|
|
| 1,038.8 |
|
|
| 1,108.8 |
|
Other |
|
| 139.5 |
|
|
| 157.8 |
|
|
| 278.8 |
|
Total revenues |
| $ | 2,918.8 |
|
| $ | 2,991.6 |
|
| $ | 3,221.8 |
|
Cost of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
| 962.7 |
|
|
| 966.5 |
|
|
| 999.8 |
|
Concession supplies |
|
| 154.5 |
|
|
| 166.3 |
|
|
| 181.0 |
|
Salaries and wages |
|
| 325.8 |
|
|
| 354.5 |
|
|
| 383.9 |
|
Facility lease expense |
|
| 321.3 |
|
|
| 328.2 |
|
|
| 323.3 |
|
Utilities and other |
|
| 355.9 |
|
|
| 355.0 |
|
|
| 448.0 |
|
General and administrative expenses |
|
| 140.6 |
|
|
| 151.0 |
|
|
| 162.6 |
|
Depreciation and amortization |
|
| 209.1 |
|
|
| 237.5 |
|
|
| 261.2 |
|
Impairment of long-lived assets |
|
| 2.8 |
|
|
| 15.1 |
|
|
| 32.4 |
|
Loss on disposal of assets and other |
|
| 20.4 |
|
|
| 22.8 |
|
|
| 38.7 |
|
Total cost of operations |
|
| 2,493.1 |
|
|
| 2,596.9 |
|
|
| 2,830.9 |
|
Operating income |
| $ | 425.7 |
|
| $ | 394.7 |
|
| $ | 390.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating data as a percentage of total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
| 61.3 | % |
|
| 60.0 | % |
|
| 56.9 | % |
Concession |
|
| 33.9 | % |
|
| 34.7 | % |
|
| 34.4 | % |
Other |
|
| 4.8 | % |
|
| 5.3 | % |
|
| 8.7 | % |
Total revenues |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of operations (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Film rentals and advertising |
|
| 53.8 | % |
|
| 53.8 | % |
|
| 54.5 | % |
Concession supplies |
|
| 15.6 | % |
|
| 16.0 | % |
|
| 16.3 | % |
Salaries and wages |
|
| 11.2 | % |
|
| 11.8 | % |
|
| 11.9 | % |
Facility lease expense |
|
| 11.0 | % |
|
| 11.0 | % |
|
| 10.0 | % |
Utilities and other |
|
| 12.2 | % |
|
| 11.9 | % |
|
| 13.9 | % |
General and administrative expenses |
|
| 4.8 | % |
|
| 5.0 | % |
|
| 5.0 | % |
Depreciation and amortization |
|
| 7.2 | % |
|
| 7.9 | % |
|
| 8.1 | % |
Impairment of long-lived assets |
|
| 0.1 | % |
|
| 0.5 | % |
|
| 1.0 | % |
Loss on disposal of assets and other |
|
| 0.7 | % |
|
| 0.8 | % |
|
| 1.2 | % |
Total cost of operations |
|
| 85.4 | % |
|
| 86.8 | % |
|
| 87.9 | % |
Operating income |
|
| 14.6 | % |
|
| 13.2 | % |
|
| 12.1 | % |
Average screen count (month end average) |
|
| 5,856 |
|
|
| 5,925 |
|
|
| 5,997 |
|
Average operating screen count (month end average) |
|
| 5,767 |
|
|
| 5,777 |
|
|
| 5,925 |
|
Revenues per average screen (dollars) |
| $ | 498,423 |
|
| $ | 504,902 |
|
| $ | 537,224 |
|
Year Ended December 31, | ||||||||||||
2013 | 2014 | 2015 | ||||||||||
Operating data (in millions): | ||||||||||||
Revenues | ||||||||||||
Admissions | $ | 1,706.1 | $ | 1,644.2 | $ | 1,765.5 | ||||||
Concession | 845.2 | 845.4 | 937.0 | |||||||||
Other | 131.6 | 137.4 | 150.1 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 2,682.9 | 2,627.0 | 2,852.6 | |||||||||
Cost of operations | ||||||||||||
Film rentals and advertising | 919.5 | 883.1 | 976.6 | |||||||||
Concession supplies | 135.7 | 132.0 | 144.3 | |||||||||
Salaries and wages | 269.3 | 273.9 | 301.1 | |||||||||
Facility lease expense | 307.9 | 317.1 | 319.7 | |||||||||
Utilities and other | 305.7 | 308.4 | 324.9 | |||||||||
General and administrative expenses | 163.2 | 148.6 | 154.1 | |||||||||
Depreciation and amortization | 164.0 | 175.7 | 189.2 | |||||||||
Impairment of long-lived assets | 3.8 | 6.6 | 8.8 | |||||||||
(Gain) loss on sale of assets and other | (3.9 | ) | 15.7 | 8.1 | ||||||||
|
|
|
|
|
| |||||||
Total cost of operations | 2,265.2 | 2,261.1 | 2,426.8 | |||||||||
|
|
|
|
|
| |||||||
Operating income | $ | 417.7 | $ | 365.9 | $ | 425.8 | ||||||
|
|
|
|
|
| |||||||
Operating data as a percentage of total revenues: | ||||||||||||
Revenues | ||||||||||||
Admissions | 63.6 | % | 62.6 | % | 61.9 | % | ||||||
Concession | 31.5 | % | 32.2 | % | 32.8 | % | ||||||
Other | 4.9 | % | 5.2 | % | 5.3 | % | ||||||
|
|
|
|
|
| |||||||
Total revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
|
|
|
|
| |||||||
Cost of operations(1) | ||||||||||||
Film rentals and advertising | 53.9 | % | 53.7 | % | 55.3 | % | ||||||
Concession supplies | 16.1 | % | 15.6 | % | 15.4 | % | ||||||
Salaries and wages | 10.0 | % | 10.4 | % | 10.6 | % | ||||||
Facility lease expense | 11.5 | % | 12.1 | % | 11.2 | % | ||||||
Utilities and other | 11.4 | % | 11.7 | % | 11.4 | % | ||||||
General and administrative expenses | 6.1 | % | 5.7 | % | 5.4 | % | ||||||
Depreciation and amortization | 6.1 | % | 6.7 | % | 6.6 | % | ||||||
Impairment of long-lived assets | 0.1 | % | 0.3 | % | 0.3 | % | ||||||
(Gain) loss on sale of assets and other | (0.1 | %) | 0.6 | % | 0.3 | % | ||||||
Total cost of operations | 84.4 | % | 86.1 | % | 85.1 | % | ||||||
Operating income | 15.6 | % | 13.9 | % | 14.9 | % | ||||||
|
|
|
|
|
| |||||||
Average screen count (month end average) | 5,548 | 5,613 | 5,725 | |||||||||
|
|
|
|
|
| |||||||
Revenues per average screen (dollars) | $ | 483,579 | $ | 468,019 | $ | 498,272 | ||||||
|
|
|
|
|
|
(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. |
30
Comparison of Years Ended December 31, 20152018 and December 31, 20142017
Revenues.Total revenues increased $225.6$230.2 million to $2,852.6$3,221.8 million for 20152018 from $2,627.0$2,991.6 million for 2014,2017, representing an 8.6%a 7.7% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||||||
Admissions revenues(1) | $ | 1,338.0 | $ | 1,220.8 | 9.6 | % | $ | 427.5 | $ | 423.4 | 1.0 | % | $ | 1,765.5 | $ | 1,644.2 | 7.4 | % | ||||||||||||||||||
Concession revenues(1) | $ | 709.7 | $ | 635.6 | 11.7 | % | $ | 227.3 | $ | 209.8 | 8.3 | % | $ | 937.0 | $ | 845.4 | 10.8 | % | ||||||||||||||||||
Other revenues(1)(2) | $ | 76.2 | $ | 66.0 | 15.5 | % | $ | 73.9 | $ | 71.4 | 3.5 | % | $ | 150.1 | $ | 137.4 | 9.2 | % | ||||||||||||||||||
Total revenues(1)(2) | $ | 2,123.9 | $ | 1,922.4 | 10.5 | % | $ | 728.7 | $ | 704.6 | 3.4 | % | $ | 2,852.6 | $ | 2,627.0 | 8.6 | % | ||||||||||||||||||
Attendance(1) | 179.6 | 173.9 | 3.3 | % | 100.5 | 90.0 | 11.7 | % | 280.1 | 263.9 | 6.1 | % |
|
| U.S. Operating Segment |
|
| International Operating Segment |
|
| Consolidated |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Constant Currency (3) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| 2018 |
|
| 2017 |
|
| % Change |
|
| 2018 |
|
| 2017 |
|
| % Change |
|
| 2018 |
|
| % Change |
|
| 2018 |
|
| 2017 |
|
| % Change |
| |||||||||||
Admissions revenues (1) |
| $ | 1,461.2 |
|
| $ | 1,356.9 |
|
|
| 7.7 | % |
| $ | 373.0 |
|
| $ | 438.1 |
|
|
| (14.9 | )% |
| $ | 426.7 |
|
|
| (2.6 | )% |
| $ | 1,834.2 |
|
| $ | 1,795.0 |
|
|
| 2.2 | % |
Concession revenues (1) |
| $ | 892.4 |
|
| $ | 790.1 |
|
|
| 12.9 | % |
| $ | 216.4 |
|
| $ | 248.7 |
|
|
| (13.0 | )% |
| $ | 243.8 |
|
|
| (2.0 | )% |
| $ | 1,108.8 |
|
| $ | 1,038.8 |
|
|
| 6.7 | % |
Other revenues (1)(2) |
| $ | 185.4 |
|
| $ | 75.1 |
|
|
| 146.9 | % |
| $ | 93.4 |
|
| $ | 82.7 |
|
|
| 12.9 | % |
| $ | 111.7 |
|
|
| 35.1 | % |
| $ | 278.8 |
|
| $ | 157.8 |
|
|
| 76.7 | % |
Total revenues (1)(2) |
| $ | 2,539.0 |
|
| $ | 2,222.1 |
|
|
| 14.3 | % |
| $ | 682.8 |
|
| $ | 769.5 |
|
|
| (11.3 | )% |
| $ | 782.2 |
|
|
| 1.7 | % |
| $ | 3,221.8 |
|
| $ | 2,991.6 |
|
|
| 7.7 | % |
Attendance (1) |
|
| 185.3 |
|
|
| 174.4 |
|
|
| 6.3 | % |
|
| 96.8 |
|
|
| 102.6 |
|
|
| (5.7 | )% |
|
|
|
|
|
|
|
|
|
| 282.1 |
|
|
| 277.0 |
|
|
| 1.8 | % |
Average ticket price (1) |
| $ | 7.89 |
|
| $ | 7.78 |
|
|
| 1.4 | % |
| $ | 3.85 |
|
| $ | 4.27 |
|
|
| (9.8 | )% |
| $ | 4.41 |
|
|
| 3.3 | % |
| $ | 6.50 |
|
| $ | 6.48 |
|
|
| 0.3 | % |
Concession revenues per patron (1) |
| $ | 4.82 |
|
| $ | 4.53 |
|
|
| 6.4 | % |
| $ | 2.24 |
|
| $ | 2.42 |
|
|
| (7.4 | )% |
| $ | 2.52 |
|
|
| 4.1 | % |
| $ | 3.93 |
|
| $ | 3.75 |
|
|
| 4.8 | % |
(1) | Revenue 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 |
(3) | Constant currency revenue amounts, which are non-GAAP measurements, were calculated using the average exchange rates for the corresponding months for 2017. We translate the results of our international operating segment from local currencies into U.S. dollars using currency rates in |
Cost of Operations. The table below summarizes certain of our theatre operating costs by reportable operating segment (in millions)U.S.
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Film rentals and advertising | $ | 768.2 | $ | 681.1 | $ | 208.4 | $ | 202.0 | $ | 976.6 | $ | 883.1 | ||||||||||||
Concession supplies | 95.4 | 86.4 | 48.9 | 45.6 | 144.3 | 132.0 | ||||||||||||||||||
Salaries and wages | 226.9 | 202.8 | 74.2 | 71.1 | 301.1 | 273.9 | ||||||||||||||||||
Facility lease expense | 239.4 | 235.2 | 80.3 | 81.9 | 319.7 | 317.1 | ||||||||||||||||||
Utilities and other | 228.0 | 217.2 | 96.9 | 91.2 | 324.9 | 308.4 |
Salaries and wages increased to $226.9$104.3 million for 2015 from $202.8 million for 2014 primarily due to a 6.3% increase in attendance and a 1.4% increase in average ticket price. Concession revenues increased staffing levels to support the increased attendance, new theatres and increases in minimum wages. Facility lease expense increased to $239.4$102.3 million for 2015 from $235.2 million for 2014 primarily due to new theatresthe 6.3% increase in attendance and increased percentage rent expensea 6.4% increase in concession revenues per patron. The increase in attendance was due to increased revenues. Utilities and other costs increased to $228.0 million for 2015 from $217.2 million for 2014a record-breaking slate of films during 2018 as well as the favorable impact of Luxury Lounger conversions. Preliminary 2018 estimates indicate U.S. industry box office revenues set an all-time record of $11.9 billion. The increase in average ticket price was primarily due to new theatresstrategic price increases and increasesthe impact of Luxury Lounger conversions. The increase in property taxes, janitorial costs and repairs and maintenance expenses.
Salaries and wages increased to $74.2 million for 2015 from $71.1 million for 2014concession revenues per patron was primarily due to new theatres,strategic price increases, incremental sales and continued expansion of concession offerings. Other revenues increased staffing levels to support the increased attendance, limited flexibility in scheduling staff caused by shifting government regulations and increased local currency wage rates. Facility lease expense decreased to $80.3$110.3 million for 2015 from $81.9 for 2014. Utilities and other costs increased to $96.9 million for 2015 from $91.2 million for 2014primarily due to increasesthe impact of changes in repairsrevenue recognition as discussed in Note 3 to our consolidated financial statements.
International. Admissions revenues decreased $65.1 million as reported primarily due to a 9.8% decrease in average ticket price and maintenance expenses, utility expensesa 5.7% decrease in attendance. Admissions revenues decreased $11.4 million in constant currency. Concession revenues decreased $32.3 million as reported primarily due to a 7.4% decrease in concession revenues per patron and new theatres. Allthe 5.7% decrease in attendance. Concession revenues decreased $4.9 million in constant currency. The decline in attendance was driven by weaker consumer appeal of the above-mentioned theatre operating costs were also impacted byinternational film slate during 2018 compared to 2017. Average ticket price and concession revenues per patron decreased, as reported, primarily due to the impact of changes in foreign currency exchangesexchange rates in certain countries in which we operate.
General and Administrative Expenses.General and administrative expenses Other revenues increased to $154.1 million for 2015 from $148.6 million for 2014. The increase was primarily due to increasesthe impact of changes in salaries and incentive compensation expense and share based awards compensation expense,revenue recognition as discussed in Note 3 to our consolidated financial statements, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.operate.
31
Cost of Operations. The table below summarizes certain of our theatre operating costs by reportable operating segment (in millions) for the years ended December 31, 2017 and 2018.
|
| U.S. Operating Segment |
|
| International Operating Segment |
|
| Consolidated |
| |||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| Constant Currency 2018 (1) |
|
| 2018 |
|
| 2017 |
| |||||||
Film rentals and advertising |
| $ | 822.6 |
|
| $ | 756.4 |
|
| $ | 177.2 |
|
| $ | 210.1 |
|
| $ | 202.6 |
|
| $ | 999.8 |
|
| $ | 966.5 |
|
Concession supplies |
|
| 134.6 |
|
|
| 112.8 |
|
|
| 46.4 |
|
|
| 53.5 |
|
|
| 52.2 |
|
|
| 181.0 |
|
|
| 166.3 |
|
Salaries and wages |
|
| 303.7 |
|
|
| 265.8 |
|
|
| 80.2 |
|
|
| 88.7 |
|
|
| 94.1 |
|
|
| 383.9 |
|
|
| 354.5 |
|
Facility lease expense |
|
| 245.1 |
|
|
| 241.0 |
|
|
| 78.2 |
|
|
| 87.2 |
|
|
| 87.3 |
|
|
| 323.3 |
|
|
| 328.2 |
|
Utilities and other |
|
| 327.0 |
|
|
| 241.6 |
|
|
| 121.0 |
|
|
| 113.4 |
|
|
| 140.6 |
|
|
| 448.0 |
|
|
| 355.0 |
|
(1) | Constant currency expense amounts, which are non-GAAP measurements, were calculated using the average exchange rates for the corresponding months for 2017. 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. Significant changes in foreign 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 without the impact of foreign currency fluctuations. |
U.S.Film rentals and advertising costs were $822.6 million, or 56.3% of admissions revenues, for 2018 compared to $756.4 million, or 55.7% of admissions revenues, for 2017. The increase in the film rentals and advertising rate was primarily due to the record-breaking box office and the relative contribution of blockbuster films to overall box office during the 2018 period. The 2018 period included such blockbuster releases as Black Panther, Avengers: Infinity War, Incredibles 2 and Jurassic World: Fallen Kingdom, which grossed in excess of $700 million, $650 million, $600 million and $400 million, respectively, in 2018. Concession supplies expense was $134.6 million, or 15.1% of concession revenues, for 2018 compared to $112.8 million, or 14.3% of concession revenues, for 2017. The increase in the concessions supplies rate was primarily due to expanded concession offerings.
Salaries and wages increased to $303.7 million for 2018 from $265.8 million for 2017 primarily due to increased staffing levels to support the increased attendance and expanded concession offerings, staffing at new and recently remodeled theatres and increases in minimum and other wage rates. Facility lease expense increased to $245.1 million for 2018 from $241.0 million for 2017 due to percentage rent due to revenue growth. Utilities and other costs increased to $327.0 million for 2018 from $241.6 million for 2017. The increase was primarily due to the presentation of transactional fees on a gross basis versus net basis (see Note 3 to our consolidated financial statements for further discussion).
International.Film rentals and advertising costs were $177.2 million ($202.6 million in constant currency), or 47.5% of admissions revenues, for 2018 compared to $210.1 million, or 48.0% of admissions revenues, for 2017. The decrease in the film rentals and advertising rate was primarily due to higher advertising costs during 2017. Concession supplies expense was $46.4 million ($52.2 million in constant currency), or 21.4% of concession revenues, for 2018 compared to $53.5 million, or 21.5% of concession revenues, for 2017.
Salaries and wages decreased to $80.2 million (increased to $94.1 million in constant currency) for 2018 from $88.7 million for 2017. The as reported decrease was due to the impact of changes in foreign currency exchange rates in certain countries in which we operate, partially offset by increased local currency wages that were primarily driven by inflation, new theatres and limited flexibility in scheduling staff caused by shifting government regulations. Facility lease expense decreased to $78.2 million (increased to $87.3 million in constant currency) for 2018 from $87.2 million for 2017. The as reported decrease was due to the impact of changes in foreign currency exchange rates in certain countries in which we operate and lower percentage rent due to the decline in revenues, partially offset by an increase in base rent due to new theatres. Utilities and other costs increased to $121.0 million ($140.6 million in constant currency) for 2018 from $113.4 million for 2017. The as reported increase was primarily due to the presentation of transactional fees on a gross basis versus net basis (see Note 3 to our consolidated financial statements for further discussion).
32
General and Administrative Expenses. General and administrative expenses increased to $162.6 million for 2018 from $151.0 million for 2017. The increase was primarily due to increased headcount to support strategic initiatives, increased benefits costs and professional fees, partially offset by the impact of changes in foreign currency exchange rates in certain countries in which we operate.
Depreciation and Amortization. Depreciation and amortization expense was $189.2$261.2 million for 20152018 compared to $175.7$237.5 million for 2014.2017. The increase was primarily due to depreciation expense related to theatre remodels, including Luxury Lounger conversions, and new theatres and remodels and other improvements of existing theatres.
Impairment of Long-Lived Assets.We recorded asset impairment charges on assets held and used of $8.8$32.4 million for 20152018 compared to $6.6$15.1 million for 2014.2017. Impairment charges for 20152018 consisted of theatre properties in nine of our U.S. regions, Brazil, Colombia, Panama and Peru. Impairment charges for 2017 consisted of theatre properties in eleven of our U.S. regions, Colombia, Brazil, Guatemala and Curacao. 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. See Notes 1 and 7 to our consolidated financial statements.
Loss on Disposal of Assets and Other. We recorded a loss on disposal of assets and other of $38.7 million during 2018 compared to $22.8 million during 2017. The loss recorded during 2018 was primarily due to the retirement of assets related to theatre remodels, including Luxury Lounger conversions, and the accrual of reserves for outstanding litigation (see Note 16 to the consolidated financial statements). The loss recorded during 2017 included the retirement of assets due to theatre remodels and closures and the write-off of a favorable lease intangible asset due to the amendment of a theatre lease, partially offset by gains related to the sale of excess land parcels and a gain on a landlord buyout of a theatre lease.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were $110.0 million for 2018 compared to $105.9 million for 2017. The increase was primarily due to an increase in the variable rate at which our term loan accrued interest during 2018. See Note 9 to our consolidated financial statements for discussion of our long-term debt and our interest rate swap agreements.
Foreign Currency Exchange Gain (Loss). We recorded a foreign currency exchange loss of $11.7 million during 2018 and a foreign currency exchange gain of $0.9 million during 2017 primarily related to intercompany transactions and changes in exchange rates from original transaction dates until cash settlement. See Notes 1 and 11 to our consolidated financial statements for discussion of foreign currency translation.
Loss on Debt Amendments and Refinancing. We recorded a loss of $1.5 million during 2018 related to amendments to our senior secured credit facility that included a reduction in the interest rate at which our term loan accrues interest and to reduce the amount of real property required to be mortgaged to secure the loans. We recorded a loss of $0.5 million during 2017 related to amendments to our senior secured credit facility that included a reduction in the interest rates applicable to the term loan and revolving credit line, revisions to certain definitions within the agreement, and an extension of the maturity of the revolving credit line. See Note 9 to our consolidated financial statements for discussion of our long-term debt.
Distributions from NCM. We recorded distributions received from NCM of $15.4 million during 2018 and $16.4 million during 2017, which were in excess of the carrying value of our Tranche 1 Investment. See Note 4 to our consolidated financial statements.
Interest expense – NCM. We recorded non-cash interest expense of $19.7 million during 2018 related to the significant financing component associated with revenues collected in advance under certain of our agreements with NCM. See Note 3 to our consolidated financial statements for further discussion of ASC Topic 606.
Equity in Income of Affiliates. We recorded equity in income of affiliates of $39.2 million during 2018 and $36.0 million during 2017. See Notes 4 and 5 to our consolidated financial statements for information about our equity investments.
33
Income Taxes. Income tax expense of $96.0 million was recorded for 2018 compared to $80.3 million recorded for 2017. The effective tax rate for 2018 was 30.7% and included a net additional charge, as a result of the Tax Act and its recently issued guidance, of $19.2 million, all non-cash. The effective tax rate for 2017 was 23.1%, which included the impact of a one-time benefit of $44.9 million related to the enactment of the Tax Act. See Note 15 to our consolidated financial statements for further information on our income tax expense and tax reform.
Comparison of Years Ended December 31, 2017 and December 31, 2016
Revenues. Total revenues increased $72.8 million to $2,991.6 million for 2017 from $2,918.8 million for 2016, representing a 2.5% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
|
| U.S. Operating Segment |
|
| International Operating Segment |
|
| Consolidated |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Constant Currency (3) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| 2017 |
|
| 2016 |
|
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
|
| 2017 |
|
| % Change |
|
| 2017 |
|
| 2016 |
|
| % Change |
| |||||||||||
Admissions revenues (1) |
| $ | 1,356.9 |
|
| $ | 1,379.0 |
|
|
| (1.6 | )% |
| $ | 438.1 |
|
| $ | 410.2 |
|
|
| 6.8 | % |
| $ | 426.7 |
|
|
| 4.0 | % |
| $ | 1,795.0 |
|
| $ | 1,789.2 |
|
|
| 0.3 | % |
Concession revenues (1) |
| $ | 790.1 |
|
| $ | 764.6 |
|
|
| 3.3 | % |
| $ | 248.7 |
|
| $ | 225.5 |
|
|
| 10.3 | % |
| $ | 243.4 |
|
|
| 7.9 | % |
| $ | 1,038.8 |
|
| $ | 990.1 |
|
|
| 4.9 | % |
Other revenues (1)(2) |
| $ | 75.1 |
|
| $ | 73.6 |
|
|
| 2.0 | % |
| $ | 82.7 |
|
| $ | 65.9 |
|
|
| 25.5 | % |
| $ | 81.5 |
|
|
| 23.7 | % |
| $ | 157.8 |
|
| $ | 139.5 |
|
|
| 13.1 | % |
Total revenues (1)(2) |
| $ | 2,222.1 |
|
| $ | 2,217.2 |
|
|
| 0.2 | % |
| $ | 769.5 |
|
| $ | 701.6 |
|
|
| 9.7 | % |
| $ | 751.6 |
|
|
| 7.1 | % |
| $ | 2,991.6 |
|
| $ | 2,918.8 |
|
|
| 2.5 | % |
Attendance (1) |
|
| 174.4 |
|
|
| 182.6 |
|
|
| (4.5 | )% |
|
| 102.6 |
|
|
| 104.6 |
|
|
| (1.9 | )% |
|
|
|
|
|
|
|
|
|
| 277.0 |
|
|
| 287.2 |
|
|
| (3.6 | )% |
Average ticket price (1) |
| $ | 7.78 |
|
| $ | 7.55 |
|
|
| 3.0 | % |
| $ | 4.27 |
|
| $ | 3.92 |
|
|
| 8.9 | % |
| $ | 4.16 |
|
|
| 6.1 | % |
| $ | 6.48 |
|
| $ | 6.23 |
|
|
| 4.0 | % |
Concession revenues per patron (1) |
| $ | 4.53 |
|
| $ | 4.19 |
|
|
| 8.1 | % |
| $ | 2.42 |
|
| $ | 2.16 |
|
|
| 12.0 | % |
| $ | 2.37 |
|
|
| 9.7 | % |
| $ | 3.75 |
|
| $ | 3.45 |
|
|
| 8.7 | % |
(1) | Revenue 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 of our consolidated financial statements. |
(3) | Constant currency revenue amounts, which are non-GAAP measurements, were calculated using the average exchange rates for the corresponding months for 2016. 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. Significant changes in foreign 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 without the impact of foreign currency fluctuations. |
U.S. Admissions revenues decreased $22.1 million primarily due to a 4.5% decrease in attendance, partially offset by a 3.0% increase in average ticket price. Concession revenues increased $25.5 million primarily due to an 8.1% increase in concession revenues per patron, partially offset by the 4.5% decrease in attendance. The decrease in attendance was due to a slate of films in 2017 that had weaker consumer appeal compared to 2016, partially offset by the favorable impact of Luxury Lounger conversions and new theatres. The increase in average ticket price was primarily due to price increases. The increase in concession revenues per patron was primarily due to incremental sales, expanded offerings, price increases and new theatres.
International. Admissions revenues increased $27.9 million as reported ($16.5 million in constant currency), primarily due to an 8.9% increase in average ticket price, partially offset by a 1.9% decrease in attendance. Concession revenues increased $23.2 million as reported ($17.9 million in constant currency), primarily due to a 12.0% increase in concession revenues per patron, partially offset by the 1.9% decrease in attendance. The decrease in attendance was due to a slate of films in 2017 that had weaker consumer appeal compared to 2016, partially offset by the impact of new theatres. Average ticket price and concession revenues per patron increased primarily due to price increases, which were predominantly driven by local inflation. Other revenues increased primarily due to increased promotional income and incremental screen advertising revenues generated by an expansion of our Flix Media services to affiliates in various countries.
34
Cost of Operations. The table below summarizes certain of our theatre operating costs by reportable operating segment (in millions) for the years ended December 31, 2016 and 2017.
|
| U.S. Operating Segment |
|
| International Operating Segment |
|
| Consolidated |
| |||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| Constant Currency 2018 (1) |
|
| 2017 |
|
| 2016 |
| |||||||
Film rentals and advertising |
| $ | 756.4 |
|
| $ | 768.9 |
|
| $ | 210.1 |
|
| $ | 193.8 |
|
| $ | 205.1 |
|
| $ | 966.5 |
|
| $ | 962.7 |
|
Concession supplies |
|
| 112.8 |
|
|
| 107.3 |
|
|
| 53.5 |
|
|
| 47.2 |
|
|
| 52.3 |
|
|
| 166.3 |
|
|
| 154.5 |
|
Salaries and wages |
|
| 265.8 |
|
|
| 248.2 |
|
|
| 88.7 |
|
|
| 77.6 |
|
|
| 88.2 |
|
|
| 354.5 |
|
|
| 325.8 |
|
Facility lease expense |
|
| 241.0 |
|
|
| 240.7 |
|
|
| 87.2 |
|
|
| 80.6 |
|
|
| 84.6 |
|
|
| 328.2 |
|
|
| 321.3 |
|
Utilities and other |
|
| 241.6 |
|
|
| 250.9 |
|
|
| 113.4 |
|
|
| 105.0 |
|
|
| 111.6 |
|
|
| 355.0 |
|
|
| 355.9 |
|
(1) | Constant currency expense amounts, which are non-GAAP measurements, were calculated using the average exchange rates for the corresponding months for 2016. 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. Significant changes in foreign 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 without the impact of foreign currency fluctuations. |
U.S.Film rentals and advertising costs were $756.4 million, or 55.7% of admissions revenues, for 2017 compared to $768.9 million, or 55.8% of admissions revenues, for 2016. The decrease in the film rentals and advertising rate was primarily due to a higher concentration of blockbuster films during 2016. Concession supplies expense was $112.8 million, or 14.3% of concession revenues, for 2017 compared to $107.3 million, or 14.0% of concession revenues, for 2016. The increase in the concession supplies rate was primarily due to the impact of our expanded concession offerings.
Salaries and wages increased to $265.8 million for 2017 from $248.2 million for 2016 primarily due to incremental staffing at new and recently remodeled theatres, increases in minimum wages and increased staffing for food and beverage initiatives. Facility lease expense increased to $241.0 million for 2017 from $240.7 million for 2016 due to the impact of new theatres. Utilities and other costs decreased to $241.6 million for 2017 from $250.9 million for the 2016 period. The decrease was primarily due to the change in classification of transactional fees and decreased equipment lease expenses for 3-D presentations.
International.Film rentals and advertising costs were $210.1 million ($205.1 million in constant currency), or 48.0% of admissions revenues, for 2017 compared to $193.8 million, or 47.2% of admissions revenues, for 2016. The increase in the film rentals and advertising rate was primarily due to higher advertising costs during 2017. Concession supplies expense was $53.5 million ($52.3 million in constant currency), or 21.5% of concession revenues, for 2017 compared to $47.2 million, or 20.9% of concession revenues, for 2016. The increase in the concession supplies rate was primarily due to the mix of concession products sold.
Salaries and wages increased to $88.7 million ($88.2 million in constant currency) for 2017 from $77.6 million for 2016. The as reported increase was due to increased local currency wage rates primarily due to inflation, new theatres and limited flexibility in scheduling staff caused by shifting government regulations. Facility lease expense increased to $87.2 million ($84.6 million in constant currency) for 2017 from $80.6 million for 2016. The as reported increase was due to the impact of changes in foreign currency exchange rates in certain countries in which we operate and new theatres. Utilities and other costs increased to $113.4 million ($111.6 million in constant currency) for 2017 from $105.0 million for 2016. The as reported increase was due to new theatres, increases in repairs and maintenance expenses and utility expenses and the impact of changes in foreign currency exchange rates in certain countries in which we operate.
General and Administrative Expenses. General and administrative expenses increased to $151.0 million for 2017 from $140.6 million for 2016. The increase was primarily due to increased salaries and wages partially due to inflation, professional fees and the impact of changes in foreign currency exchange rates in certain countries in which we operate.
Depreciation and Amortization. Depreciation and amortization expense was $237.5 million for 2017 compared to $209.1 million for 2016. The increase was primarily due to depreciation expense related to theatre remodels and new theatres.
35
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used of $15.1 million for 2017 compared to $2.8 million for 2016. Impairment charges for 2017 consisted of theatre properties in the U.S., Colombia, Brazil, Guatemala and Curacao, impacting fifteen of our twenty-seven reporting units. Impairment charges for 2016 consisted of theatre properties in the U.S., Colombia and Ecuador, impacting fourteen of our twenty-seven reporting units. Impairment charges for 2014 consisted primarily of U.S. theatre properties, impacting twelve of our twenty-six reporting units. 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. See Notes 1 6 and 7 to our consolidated financial statements.
Loss on SaleDisposal of Assets and Other.We recorded a loss on saledisposal of assets and other of $8.1$22.8 million during 20152017 compared to $15.7$20.4 million during 2014.2016. The loss recorded during 20152017 included the retirement of assets due to theatre remodels and closures and the write-off of a favorable lease termination costs, contract termination costsintangible asset due to the amendment of a theatre lease, partially offset by gains related to the sale of excess land parcels and a gain on a landlord buyout of a theatre lease. The loss recorded during 2016 included the retirement of assets due to theatre remodels and closures, partially offset by gains related to lease amendments that resulted in a reduction of certain capital lease liabilities,gain on the sale of anour investment in RealD stock (see Note 5 to our consolidated financial statements) and a Taiwan joint venture, andgain on the sale of a land parcel in the U.S. The loss recorded during 2014 was primarily due to the retirement of certain theatre equipment that was replaced during the period, lease termination charges recorded for theatre closures and a charge for termination of a vendor contract.parcel.
Interest Expense.Interest costs incurred, including amortization of debt issue costs, were $112.7$105.9 million for 20152017 compared to $113.7$108.3 million for 2014. See Note 92016. The decrease was due to the redemption of our previously outstanding $200.0 million 7.375% senior subordinated notes (the “7.375% Senior Subordinated Notes”) funded by a $225.0 million add-on to our consolidated financial statements for further discussion of our long-term debt.
Foreign Currency Exchange Loss.We recorded foreign currency exchange losses of $16.8 million during 2015 and $6.2 million during 2014 related4.875% senior notes (the “4.875% Senior Notes), which occurred on March 21, 2016, as well as amendments to the continued decline of exchange rates in certain of the international countries in which we operate. See Notes 1 and 12 to our consolidated financial statements for discussion of foreign currency translation.
Loss on Amendment to Debt Agreement. We recorded a loss of $0.9 million in 2015 related to the amendment of our senior secured credit facility.facility completed during June and December of 2016 and June of 2017, which, in the aggregate, reduced the rate at which our term loan accrues interest by 100 basis points. See Note 9 to our consolidated financial statements for discussion of our long-term debt.
Distributions from NCM.Foreign Currency Exchange Gain. We recorded distributions received from NCMa foreign currency exchange gain of $18.1$0.9 million during 20152017 and $18.5a foreign currency exchange gain of $6.5 million during 2014, which were2016 primarily related to intercompany transactions and changes in excess ofexchange rates from the carrying value of our Tranche 1 Investment. NCM did not distribute any excessoriginal transaction date until cash during the second quarter of 2015 due to expenses incurred as the result of the termination of a proposed merger. See Note 4 to our consolidated financial statements.
Equity in Income of Affiliates.We recorded equity in income of affiliates of $28.1 million during 2015 and $22.7 million during 2014.settlement. See Notes 41 and 511 to our consolidated financial statements for information about our equity investments.discussion of foreign currency translation.
Income Taxes.Income tax expense of $130.0 million was recorded for 2015 compared to $97.2 million recorded for 2014. The effective tax rate for 2015 was 37.1%. The effective tax rate for 2014 was 33.2%. The effective tax rate for 2014 reflects the impact of items related to our Mexican subsidiaries. See Note 16 to our consolidated financial statements.
Comparison of Years Ended December 31, 2014 and December 31, 2013
Revenues.Total revenues decreased $55.9 million to $2,627.0 million for 2014 from $2,682.9 million for 2013, representing a 2.1% decrease. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2014 | 2013 | Change | 2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||||||||||||||||||
Admissions revenues(1) | $ | 1,220.8 | $ | 1,231.4 | (0.9 | %) | $ | 423.4 | $ | 474.7 | (10.8 | %) | $ | 1,644.2 | $ | 1,706.1 | (3.6 | %) | ||||||||||||||||||
Concession revenues(1) | $ | 635.6 | $ | 609.3 | 4.3 | % | $ | 209.8 | $ | 235.9 | (11.1 | %) | $ | 845.4 | $ | 845.2 | — | % | ||||||||||||||||||
Other revenues(1)(2) | $ | 66.0 | $ | 59.1 | 11.7 | % | $ | 71.4 | $ | 72.5 | (1.5 | %) | $ | 137.4 | $ | 131.6 | 4.4 | % | ||||||||||||||||||
Total revenues(1)(2) | $ | 1,922.4 | $ | 1,899.8 | 1.2 | % | $ | 704.6 | $ | 783.1 | (10.0 | %) | $ | 2,627.0 | $ | 2,682.9 | (2.1 | %) | ||||||||||||||||||
Attendance(1) | 173.9 | 177.2 | (1.9 | %) | 90.0 | 99.4 | (9.5 | %) | 263.9 | 276.6 | (4.6 | %) |
Cost of Operations. The table below summarizes certain of our theatre operating costs by reportable operating segment (in millions).
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Film rentals and advertising | $ | 681.1 | $ | 687.3 | $ | 202.0 | $ | 232.2 | $ | 883.1 | $ | 919.5 | ||||||||||||
Concession supplies | 86.4 | 83.7 | 45.6 | 52.0 | 132.0 | 135.7 | ||||||||||||||||||
Salaries and wages | 202.8 | 192.5 | 71.1 | 76.8 | 273.9 | 269.3 | ||||||||||||||||||
Facility lease expense | 235.2 | 215.5 | 81.9 | 92.4 | 317.1 | 307.9 | ||||||||||||||||||
Utilities and other | 217.2 | 204.5 | 91.2 | 101.2 | 308.4 | 305.7 |
Salaries and wages increased to $202.8 million for 2014 from $192.5 million for 2013. Facility lease expense increased to $235.2 million for 2014 from $215.5 million for 2013. Utilities and other costs increased to $217.2 million for 2014 from $204.5 million for 2013. All of the above-mentioned theatre operating costs for 2014 increased primarily due to new theatre openings and the inclusion of the 32 Rave theatres acquired on May 29, 2013 (see Note 3 to the consolidated financial statements).
Salaries and wages decreased to $71.1 million for 2014 from $76.8 million for 2013. Facility lease expense decreased to $81.9 million for 2014 from $92.4 for 2013. Utilities and other costs decreased to $91.2 million for 2014 from $101.2 million for 2013. All of the above-mentioned theatre operating costs were impacted by changes in exchange rates in certain countries in which we operate and the sale of our Mexico theatres during November 2013.
General and Administrative Expenses.General and administrative expenses decreased to $148.6 million for 2014 from $163.2 million for 2013. The reduction was primarily due to the impact of changes in exchange rates in certain countries in which we operate, the sale of our Mexico theatres in November 2013 and a reduction in incentive compensation expense. General and administrative expenses for 2013 also included approximately $1.5 million in severance expense and approximately $1.8 million in share based award compensation expense related to the sale of our Mexico theatres during November 2013.
Depreciation and Amortization. Depreciation and amortization expense was $175.7 million for 2014 compared to $164.0 million for 2013. The increase was primarily due to new theatres, including the 32 Rave theatres acquired on May 29, 2013, and remodels and other improvements of existing theatres, partially offset by the sale of our Mexico theatres during November 2013.
Impairment of Long-Lived Assets.We recorded asset impairment charges on assets held and used of $6.6 million for 2014 compared to $3.8 million for 2013. Impairment charges for 2014 consisted primarily of U.S. theatre properties, impacting twelve of our twenty-six reporting units. Impairment charges for 2013 were primarily related to U.S. and international theatre properties, impacting twelve of our twenty-six reporting units. 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. See Notes 1, 6 and 7 to our consolidated financial statements.
(Gain) Loss on Sale of AssetsDebt Amendments and Other.Refinancing. We recorded a loss on sale of assets and other of $15.7$0.5 million during 2014 compared2017 related to amendments to our senior secured credit facility that included a gainreduction in the interest rate at which our term loan accrues interest, revisions to certain definitions within the agreement, a reduction of $3.9the interest rates applicable to the revolving credit line and an extension of the maturity of the revolving credit line. We recorded a loss of $13.4 million during 2013. The loss recorded during the 2014 period was2016 primarily due to the retirement of certain theatre equipment that was replaced during the period, lease termination charges recorded for theatre closures and a charge for termination of a vendor contract. The gain recorded during 2013 included a gain of $3.5 million related to the saleearly redemption of our Mexico theatres and a gain of $2.3$200.0 million related to the sale of one theatre in Argentina, both of which were partially offset by the retirement of equipment replaced during the period.
Interest Expense.Interest costs incurred, including amortization of debt issue costs, were $113.7 million for 2014 compared to $124.7 million for 2013. The decrease was primarily due to the issuance of the 4.875%7.375% Senior Notes on May 24, 2013 that were used to pay off, on June 24, 2013, the previously issued 8.625% SeniorSubordinated Notes. See Note 9 to our consolidated financial statements for further discussion of our long-term debt.
Loss on Early Retirement of Debt. We recorded a loss on early retirement of debt of approximately $72.3 million during 2013 as a result of the redemption of Cinemark USA, Inc.’s 8.625% Senior Notes on June 24, 2013. The loss on early retirement of debt included approximately $56.6 million for a make-whole premium paid, the write-off of approximately $8.0 million in unamortized bond discount, the write-off of $7.6 million in unamortized debt issue costs and the payment of $0.1 million of other fees. See Note 9 to our consolidated financial statements for further discussion of our long-term debt.
Distributions from NCM.We recorded distributions received from NCM of $18.5$16.4 million during 20142017 and $20.7$14.7 million during 2013,2016, which were in excess of the carrying value of our Tranche 1 Investment. See Note 4 to our consolidated financial statements.
Equity in Income of Affiliates.We recorded equity in income of affiliates of $22.7$36.0 million during 20142017 and $22.7$32.0 million during 2013.2016. See Notes 4 and 5 to our consolidated financial statements for information about our equity investments.
Income Taxes.Income tax expense of $97.2$80.3 million was recorded for 20142017 compared to $114.2$104.9 million recorded for 2013.2016. The effective tax rate for 20142017 was 33.2%.23.1%, which included the impact of a one-time benefit of $44.9 million related to the enactment of the Tax Act. See Note 15 to our consolidated financial statements. The effective tax rate for 20132016 was 42.9%28.9%. See Note 16 to our consolidated financial statements.
Liquidity and Capital Resources
Operating Activities
We primarily collect our revenues in cash, mainly through box office receipts and the sale of concessions. In addition, nearly all of our theatres provide the patron a choice of using a credit card or debit card or advanced-sale type certificates such as a gift card, in place of cash. Becausecard. Since our revenues are received in cash prior to the payment of related expenses, we have an operating “float” and historically have not
36
required traditional working capital financing. Cash provided by operating activities amounted to $309.4$462.3 million, $454.1$528.4 million and $455.2$556.3 million for the years ended December 31, 2013, 20142016, 2017 and 2015,2018, respectively. Cash provided byThe increase in cash flows from operating activities for the years ended December 31, 2017 and 2018 was lower in 2013 primarily due to the make-whole premiumincrease in revenues and the amount and timing of $56.6 million paid to redeem the 8.625% Senior Notes, which was included in net income.vendor payments for movies released during December of those years.
Investing Activities
Our investing activities have been principally related to the development, remodel and acquisition of theatres. New theatre openings, remodels and acquisitions historically have been financed with internally generated cash and by debt financing, including borrowings under our senior secured credit facility. Cash used for investing activities amounted to $364.7$327.8 million, $253.3$410.5 million and $328.1$451.4 million for the years ended December 31, 2013, 20142016, 2017 and 2015,2018, respectively. Cash used for investing activities for the year ended December 31, 2013 included the acquisition of theatres in the U.S. for approximately $259.2 million and proceeds of approximately $126.2 million from the sale of our theatres in Mexico. The increase in cash used for investing activities during 2015 is2017 was primarily due to increasedincreases in capital expenditures and acquisitions. The increase in cash used for investing activities during 2018 was primarily due to the acquisition of NCM common units (see Note 4) for $78.4 million, partially offset by a decrease in capital expenditures.
Cash capitalCapital expenditures for the years ended December 31, 2013, 20142016, 2017 and 20152018 were as follows (in millions):
Period | New Theatres | Existing Theatres (a) | Total | |||||||||
Year Ended December 31, 2013 | $ | 134.7 | $ | 125.0 | $ | 259.7 | ||||||
Year Ended December 31, 2014 | $ | 104.7 | $ | 140.0 | $ | 244.7 | ||||||
Year Ended December 31, 2015 | $ | 132.4 | $ | 199.3 | $ | 331.7 |
Period |
| New Theatres |
|
| Existing Theatres (1) |
|
| Total |
| |||
Year Ended December 31, 2016 |
| $ | 89.8 |
|
| $ | 237.1 |
|
| $ | 326.9 |
|
Year Ended December 31, 2017 |
| $ | 58.3 |
|
| $ | 322.6 |
|
| $ | 380.9 |
|
Year Ended December 31, 2018 |
| $ | 80.7 |
|
| $ | 265.4 |
|
| $ | 346.1 |
|
(1) |
| The |
Capital expenditures for existing theatres in the table above includes the costs of remodeling certain of our existing properties to include Luxury Loungers and expanded concession offerings, which began during 2015. During the years ended December 31, 2016, 2017 and 2018, we had an average of 89, 148 and 72 of our domestic screens, respectively, temporarily closed for such remodels.
Our U.S. theatre circuit consisted of 4,518341 theatres with 4,586 screens as of December 31, 2015.2018. We built ninethree new theatres and 9932 screens and closed seven theatresone theatre with 807 screens during the year ended December 31, 2015.2018. At December 31, 2015,2018, we had signed commitments to open sevensix new theatres and 70 screens in domestic markets during 20162019 and open five new theatres with 5954 screens subsequent to 2016.2019. We estimate the remaining capital expenditures for the development of these 129124 domestic screens will be approximately $73$80 million.
Our international theatre circuit consisted of 1,278205 theatres with 1,462 screens as of December 31, 2015.2018. We built 13eight new theatres and 8349 screens, acquired three theatres with 19 screens and closed one screenfour screens during the year ended December 31, 2015.2018. At December 31, 2015,2018, we had signed commitments to open sixeight new theatres and 4559 screens in international markets during 20162019 and open two new theatres and 1729 screens subsequent to 2016.2019. We estimate the remaining capital expenditures for the development of these 6288 international screens will be approximately $39$52 million.
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.
37
Cash used for financing activities was $75.3$163.1 million, $146.3$157.4 million and $150.5$191.9 million during the years ended December 31, 2013, 20142016, 2017 and 2015,2018, respectively. Cash used for financing activities for the year ended December 31, 2013 included proceeds from the issuanceprimarily consists of dividends paid to our parent company, Cinemark USA, Inc.’s 4.875% Senior Notes, partially offset by the redemption of Cinemark USA, Inc.’s 8.625% Senior Notes. See below for further information regarding these transactions.Holdings, Inc..
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 December 31, 20142017 and 20152018 (in millions):
As of December 31, |
| As of December 31, |
| |||||||||||||
2014 | 2015 |
| 2017 |
|
| 2018 |
| |||||||||
Cinemark USA, Inc. term loan | $ | 686.0 | $ | 679.0 |
| $ | 659.5 |
|
| $ | 652.9 |
| ||||
Cinemark USA, Inc. 7.375% senior subordinated notes due 2021 | 200.0 | 200.0 | ||||||||||||||
Cinemark USA, Inc. 5.125% senior notes due 2022 | 400.0 | 400.0 |
|
| 400.0 |
|
|
| 400.0 |
| ||||||
Cinemark USA, Inc. 4.875% senior notes due 2023 | 530.0 | 530.0 |
|
| 755.0 |
|
|
| 755.0 |
| ||||||
Other | 7.0 | 5.6 |
|
| 2.8 |
|
|
| 1.4 |
| ||||||
|
| |||||||||||||||
Total long-term debt | $ | 1,823.0 | $ | 1,814.6 |
| $ | 1,817.3 |
|
| $ | 1,809.3 |
| ||||
Less current portion | 8.4 | 8.4 |
|
| 7.1 |
|
|
| 8.0 |
| ||||||
|
| |||||||||||||||
Subtotal long-term debt, less current portion | $ | 1,814.6 | $ | 1,806.2 |
| $ | 1,810.2 |
|
| $ | 1,801.3 |
| ||||
Less: Debt issuance costs | 31.4 | 33.3 | ||||||||||||||
|
| |||||||||||||||
Less: Debt discounts and debt issuance costs, net of accumulated amortization |
|
| 29.8 |
|
|
| 28.7 |
| ||||||||
Long-term debt, less current portion, net of debt issuance costs | $ | 1,783.2 | $ | 1,772.9 |
| $ | 1,780.4 |
|
| $ | 1,772.6 |
| ||||
|
|
As of December 31, 2015,2018, after giving effect to a letter of credit outstanding, we had $100.0$98.8 million in available borrowing capacity on our revolving credit line.
As of December 31, 2015,2018, our long-term debt obligations, scheduled interest payments on long-term debt, future minimum lease obligations under non-cancelable operating and capital leases, scheduled interest payments under capital leases and other obligations for each period indicated are summarized as follows:
Payments Due by Period |
| Payments Due by Period |
| |||||||||||||||||||||||||||||||||||||
(in millions) |
| (in millions) |
| |||||||||||||||||||||||||||||||||||||
Less Than | After |
|
|
|
|
| Less Than |
|
|
|
|
|
|
|
|
|
| After |
| |||||||||||||||||||||
Contractual Obligations | Total | One Year | 1 - 3 Years | 3 - 5 Years | 5 Years |
| Total |
|
| One Year |
|
| 1 - 3 Years |
|
| 3 - 5 Years |
|
| 5 Years |
| ||||||||||||||||||||
Long-term debt(1) | $ | 1,814.6 | $ | 8.4 | $ | 16.8 | $ | 15.4 | $ | 1,774.0 |
| $ | 1,809.3 |
|
| $ | 8.0 |
|
| $ | 13.2 |
|
| $ | 1,168.2 |
|
| $ | 619.9 |
| ||||||||||
Scheduled interest payments on long-term debt(2) | $ | 557.8 | 84.3 | 167.7 | 166.5 | 139.3 |
| $ | 419.0 |
|
|
| 86.2 |
|
|
| 171.3 |
|
|
| 127.4 |
|
|
| 34.1 |
| ||||||||||||||
Operating lease obligations | $ | 1,699.9 | 248.5 | 446.7 | 343.2 | 661.5 |
| $ | 1,784.5 |
|
|
| 253.3 |
|
|
| 472.7 |
|
|
| 381.4 |
|
|
| 677.1 |
| ||||||||||||||
Capital lease obligations | $ | 227.7 | 18.8 | 40.0 | 45.8 | 123.1 |
| $ | 259.5 |
|
|
| 27.1 |
|
|
| 51.7 |
|
|
| 43.1 |
|
|
| 137.6 |
| ||||||||||||||
Scheduled interest payments on capital leases | $ | 96.1 | 16.4 | 27.7 | 20.0 | 32.0 |
| $ | 86.4 |
|
|
| 15.4 |
|
|
| 24.4 |
|
|
| 17.9 |
|
|
| 28.7 |
| ||||||||||||||
Purchase and other commitments(3) | $ | 157.5 | 117.5 | 37.6 | 2.2 | 0.2 |
| $ | 153.2 |
|
|
| 89.6 |
|
|
| 54.3 |
|
|
| 9.3 |
|
|
| — |
| ||||||||||||||
Current liability for uncertain tax positions(4) | $ | 9.2 | 9.2 | — | — | — |
| $ | 0.6 |
|
|
| 0.6 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total obligations | $ | 4,562.8 | $ | 503.1 | $ | 736.5 | $ | 593.1 | $ | 2,730.1 |
| $ | 4,512.5 |
|
| $ | 480.2 |
|
| $ | 787.6 |
|
| $ | 1,747.3 |
|
| $ | 1,497.4 |
| ||||||||||
|
|
|
|
|
(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 December 31, |
(3) | Includes estimated capital expenditures associated with the construction of new theatres to which we were committed as of December 31, |
(4) | The contractual obligations table excludes the long-term portion of our liability for uncertain tax positions of |
38
Off-Balance Sheet Arrangements
Other than the operating leases and purchase and other commitments disclosed in the tables above, we do not have any other off-balance sheet arrangements.
Senior Secured Credit Facility
Cinemark USA, Inc. has a senior secured credit facility that includes a seven year $700.0 million term loan and a five year $100.0 million revolving credit line or the Senior Secured Credit Facility. (the “Credit Agreement”).
On May 8, 2015, 16, 2016, Cinemark USA, Inc. made a pre-payment of $13.5 million on its term loan using the net proceeds received from the sale of shares of RealD (see Note 5 to our consolidated financial statements). We did not incur any fees as a result of the pre-payment.
Cinemark USA, Inc. amended its Credit Agreement during 2016, 2017 and 2018 as follows:
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|
|
| Debt Issue |
|
| Loss on Debt |
| ||
Effective Date |
| Nature of Amendment |
| Costs Paid (1) |
|
| Amendment (2) |
| ||
June 13, 2016 |
| Reduced term loan interest rate by 0.25% |
| $ | 0.8 |
|
| $ | 0.2 |
|
December 15, 2016 |
| Reduced term loan interest rate by 0.50% |
| $ | 2.4 |
|
| $ | 0.2 |
|
June 16, 2017 |
| Reduced term loan interest rate by 0.25%; modified certain definitions and other provisions in the Credit Agreement |
| $ | 0.5 |
|
| $ | 0.2 |
|
November 28, 2017 |
| Extended maturity of revolving credit line to December 2022; reduced the interest rate applicable to borrowings under the credit line |
| $ | 0.3 |
|
| $ | 0.3 |
|
March 29, 2018 |
| Extended maturity of term loan to March 2025; reduced term loan interest rate by 0.25%; reduced real property mortgage requirements |
| $ | 5.0 |
|
| $ | 1.5 |
|
(1) | Reflected as a reduction of long term debt on the consolidated balance sheet. |
(2) | Reflected as a loss on debt amendments and refinancing on the consolidated statement of income for the year in which the amendments were effective. |
Under the Senior Securedamended Credit Facility to extend the maturity of the term loan from December 2019 to May 2022. QuarterlyAgreement, quarterly principal payments in the amount of $1.75$1.6 million are due on the term loan through MarchDecember 31, 2022,2024, with the remaininga final principal payment of $635.3$613.4 million due on May 8, 2022. The maturity date forMarch 29, 2025.
Subsequent to the revolving credit line, which is December 2017, did not change.
InterestMarch 29, 2018 amendment noted above, interest on the term loan accrues at Cinemark USA, Inc.’s option at: (A) the base rate equal to the highergreater of (1) the prime lendingUS “Prime Rate” as quoted in The Wall Street Journal or if no such rate as set forth on the British Banking Association Telerate page 5, oris quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate from time to time plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin of 2.0%0.75% per annum, or (B) a “eurodollar rate”Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin of 3.0%1.75% per annum. Interest on the revolving credit line accrues, at Cinemark USA, Inc.’sour option, at: (A) a base rate equal to the highergreater of (1) the prime lendingUS “Prime Rate” as quoted in The Wall Street Journal or if no such rate as set forth on the British Banking Association Telerate page 5 andis quoted therein, in a Federal Reserve Board statistical release, (2) the federal funds effective rate from time to time 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 1.00%1.50% to 1.75% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 2.00% to 2.75%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.
At December 31, 2018, there was $652.9 million outstanding under the term loan. Cinemark USA, Inc. had $98.8 million in available borrowing capacity on the revolving credit agreement.line, after giving effect to a letter of credit outstanding as of December 31, 2018. The average interest rate on outstanding term loan borrowings under the Credit Agreement at December 31, 2018 was approximately 4.4% per annum.
39
Cinemark USA, Inc.’s obligations under the Senior Secured Credit FacilityAgreement 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 Senior Secured Credit FacilityAgreement 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 Cinemark Holdings, Inc.’sour 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 andor 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 determineddefined in accordance with the Senior Secured Credit Facility.Agreement, not to exceed 5.0 to 1. As of December 31, 2018, Cinemark USA, Inc.’s actual ratio was 2.9 to 1.
The dividend restriction contained in the Senior Secured Credit FacilityAgreement 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 Senior Secured Credit Facility;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 Senior Secured Credit Facility,Agreement, and (c) certain other defined amounts. As of December 31, 2015,2018, Cinemark USA, Inc. could have distributed up to approximately $1,905.1$2,918.1 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms
We have three interest rate swap agreements that are used to hedge a portion of the Senior Secured Credit Facility, subject to its available cash and other borrowing restrictions outlined ininterest rate risk associated with the agreement.
At December 31, 2015, there was $679.0 millionvariable interest rates on the term loan outstanding under the term loan and no borrowings outstanding under the revolving credit line. Cinemark USA, Inc. had $100.0 million in available borrowing capacity on the revolving credit line. The averageCredit Agreement. See Note 9 of our consolidation financial statements for discussion of interest rate on outstanding term loan borrowings under the Senior Secured Credit Facilityswaps. See also discussion of interest rate risk at December 31, 2015 was approximately 3.6% per annum.Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
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, or the 4.875%(the “4.875% Senior Notes. Proceeds, after payment of fees, were used to finance a redemption of the 8.625% Senior Notes due 2019, discussed below.Notes”). Interest on the 4.875% Senior Notes is payable on June 1 and December 1 of each year, beginning December 1, 2013.year. The 4.875% Senior Notes mature on June 1, 2023.
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. Proceeds, after payment of fees, were used to finance the redemption of Cinemark, USA, Inc.’s previously outstanding $200.0 million 7.375% senior subordinated notes due 2021 (the “7.375% Senior Subordinated Notes”), as discussed below. 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 Cinemark USA, Inc.’s existing 4.875% Senior Notes. The aggregate principal amount of $755.0 million of 4.875% Senior Notes mature on June 1, 2023. The Company incurred debt issue costs of approximately $3.7 million in connection with the issuance of the additional notes, which, along with the discount of $2.3 million, are reflected as a reduction of long term debt, net of accumulated amortization, on the consolidated balance sheet as of December 31, 2018.
The 4.875% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or become liable with respect to any of Cinemark USA, Inc.’s or a guarantor’s debt. The 4.875% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior unsecured debt and senior in right of payment to all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior subordinated debt. The 4.875% Senior Notes and the guarantees are effectively subordinated to all of Cinemark USA, Inc.’s and its guarantor’s existing and future secured debt to the extent of the value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.’s senior secured credit facility.Credit Agreement. The 4.875% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of Cinemark USA, Inc.’s subsidiaries that do not guarantee the 4.875% Senior Notes.
40
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 December 31, 2015,2018, Cinemark USA, Inc. could have distributed up to approximately $2,079.7$2,980.6 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 December 31, 20152018 was approximately 7.7 6.3to 1.
Prior to June 1, 2018, Cinemark USA, Inc. may redeem all or any part of the 4.875% Senior Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the 4.875% Senior Notes to the date of redemption. After June 1, 2018, Cinemark USA, Inc. may redeem the 4.875% Senior Notes in whole or in part at redemption prices specified in the indenture. In addition, prior to June 1, 2016, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the 4.875% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture.
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 or the 5.125%(the “5.125% Senior Notes. A portion of the proceeds were used to refinance a portion of the former senior secured credit facility and to fund the purchase price for the Rave Acquisition (see Note 3 to the consolidated financial statements)Notes”). Interest on the 5.125% Senior Notes is payable on June 15 and December 15 of each year, beginning June 15, 2013.year. The 5.125% Senior Notes mature on December 15, 2022.
The 5.125% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or become liable with respect to any of Cinemark USA, Inc.’s or a guarantor’s debt. The 5.125% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior unsecured debt and senior in right of payment to all of Cinemark USA, Inc.’s and its guarantor’s existing and future subordinated debt. The 5.125% Senior Notes and the guarantees are effectively subordinated to all of Cinemark USA, Inc.’s and its guarantor’s existing and future secured debt to the extent of the value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.’s senior secured credit facility.Credit Agreement. The 5.125% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of Cinemark USA, Inc.’s subsidiaries that do not guarantee the 5.125% Senior Notes.
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 December 31, 2015,2018, Cinemark USA, Inc. could have distributed up to approximately $2,084.0$2,985.8 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 December 31, 20152018 was approximately 7.76.3 to 1.
Prior to December 15, 2017, Cinemark USA, Inc. may redeem all or any part of the 5.125% Senior Notes at its option at 100% of the principal amount plus a make-whole premium. After December 15, 2017, Cinemark USA, Inc. may redeem the 5.125% Senior Notes in whole or in part at redemption prices described in the 5.125% Senior Notes. In addition, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the 5.125% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the 5.125% Senior Notes.
Cinemark USA, Inc. 7.375% Senior Subordinated Notes
On June 3, 2011, Cinemark USA, Inc. issued $200.0 million aggregate principal amount of 7.375% senior subordinated notes due 2021, at par value, or the Senior Subordinated Notes. Interest on the Senior Subordinated Notes is payable on June 15 and December 15 of each year. The Senior Subordinated Notes mature on June 15, 2021.
The Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and several senior subordinated unsecured basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or become liable with respect to any of Cinemark USA, Inc.’s or a guarantor’s other debt. The Senior Subordinated Notes and the guarantees are senior subordinated unsecured obligations and rank equally in right of payment with all of Cinemark USA, Inc.’s and a guarantor’s future senior subordinated indebtedness; are subordinate in right of payment to all of Cinemark USA, Inc.’s and a guarantor’s existing and future senior indebtedness, whether secured or unsecured, including Cinemark USA, Inc.’s obligations under its Senior Secured Credit Facility, its 5.125% Senior Notes and 4.875% Senior Notes; and structurally subordinate to all existing and future indebtedness and other liabilities of Cinemark USA, Inc.’s non-guarantor subsidiaries.
The indenture to the Senior Subordinated 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 December 31, 2015, Cinemark USA, Inc. could have distributed up to approximately $2,072.8 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the Senior Subordinated Notes, subject to its available cash and other borrowing restrictions outlined in the indenture governing the Senior Subordinated Notes. Upon a change of control, as defined in the indenture, Cinemark USA, Inc. would be required to make an offer to repurchase the Senior Subordinated 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 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 December 31, 2015 was approximately 7.7 to 1.
Prior to June 15, 2016, Cinemark USA, Inc. may redeem all or any part of the Senior Subordinated Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the senior subordinated notes to the date of redemption. After June 15, 2016, Cinemark USA, Inc. may redeem the Senior Subordinated Notes in whole or in part at redemption prices specified in the indenture. In addition, prior to June 15, 2014, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the Senior Subordinated Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture.
Cinemark USA, Inc. 8.625% Senior Notes
On June 29, 2009, Cinemark USA, Inc. issued $470.0 million aggregate principal amount of 8.625% senior notes due 2019, or the 8.625% Senior Notes, with an original issue discount of $11.5 million, resulting in proceeds of approximately $458.5 million. On June 24, 2013, Cinemark USA, Inc. redeemed its 8.625% Senior Notes at 112.035% of the principal amount, inclusive of a make-whole premium, plus accrued and unpaid interest, utilizing the proceeds from the issuance of the 4.875% Senior Notes discussed above.
Covenant Compliance
As of December 31, 2015,2018, we believe we were in full compliance with all agreements, including all related covenants, governing our outstanding debt.
41
We are rated by nationally recognized rating agencies. The rating scales and methodologies used to derive individual ratings may vary from agency to agency. Credit ratings are issued by credit rating agencies based on evaluations of our ability to pay back our outstanding debt and the likelihood that we would default on that debt prior to its maturity. The credit ratings issued by the credit rating agencies represent the credit rating agency’sagency's evaluation of both qualitative and quantitative information for our company. The credit ratings that are issued are based on the credit rating agency’s judgment and experience in determining what information should be considered in giving a rating to a particular company. Ratings are always subject to change and there can be no assurance that our current ratings will continue for any given period of time. A downgrade of our debt ratings, depending on the extent, could increase the cost to borrow funds. Below are our current credit ratings.
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With respect to the ratings issued by Moody’s as noted above, Moody’s defines these ratings as follows:
With respect to the ratings issued by Standard and Poor’s as noted above, Standard and Poor’s defines these ratings as follows:
New Accounting Pronouncements
In January 2015, the Financial Accounting Standards Board (“FASB”)See Note 2 to our consolidated financial statements for a discussion of recently issued Accounting Standards Update 2015-01,Income Statement – Extraordinaryaccounting pronouncements and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, (“ASU 2015-01”). ASU 2015-01 eliminates the concept of an extraordinary item from GAAP. With this update, there is no longer a need to segregate extraordinary items from the results of ordinary operations, separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or disclose income taxes and earnings per share data applicable to an extraordinary item. However, presentation and disclosure requirements for items that are unusual in nature and occur infrequently still apply. ASU 2015-01 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. We have elected to early adopt ASU 2015-01, which had notheir impact on our consolidated financial statements.
In February 2015, the FASB issued Accounting Standards Update 2015-02,Consolidation (Topic 810): Amendments to the Consolidation Analysis, (“ASU 2015-02”). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with certain VIEs. ASU 2015-02 also provides a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU 2015-02 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact of ASU 2015-02 on our consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update 2015-03Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). The update changes the presentation of debt issuance costs for term debt in the balance sheet by requiring the debt issuance costs be presented as a direct deduction from the related debt liability, rather than recorded as an asset. This guidance is effective for periods beginning after December 15, 2015, and interim periods within those annual periods applied retrospectively. Early adoption is permitted. We adopted this guidance in the fourth quarter of fiscal year 2015. Debt issuance costs associated with long-term debt, net of accumulated amortization, were $31.4 million and $33.2 million as of December 31, 2014 and 2015, respectively. The balance sheet as of December 31, 2014 has been recast to reflect the reclassification of debt issuances costs, net of accumulated amortization, from deferred charges and other assets – net to a reduction of long-term debt, less current portion.
In April 2015, the FASB issued Accounting Standards Update 2015-05,Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in Cloud Computing Arrangement, (“ASU 2015-05”). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. In addition, the guidance in this Update supersedes paragraph 350-40-25-16. Consequently, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. ASU 2015-05 is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. We have elected to early adopt ASU 2015-05, which had no impact on our consolidated financial statements.
In July 2015, the FASB issued Accounting Standards Update 2015-11,Inventory (Topic 330): Simplifying the Measurement of Inventory, (“ASU 2015-11”). ASU 2015-11 affects reporting entities that measure inventory using first-in, first-out (FIFO) or average cost. Specifically, ASU 2015-11 requires that inventory be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. We do not expect ASU 2015-11 to have an impact on our consolidated financial statements.
In August 2015, the FASB issued Accounting Standards Update 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, (“ASU 2015-14”). ASU 2015-14 defers the effective date of Accounting Standards Update 2014-09: Revenue from Contracts with Customers (Topic 606), (“ASU 2014-09). The guidance in ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are currently evaluating the impact of ASU 2014-09, as amended by ASU 2015-14, on our consolidated financial statements.
In August 2015, the FASB issued Accounting Standards Update 2015-15,Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, (“ASU 2015-15”). ASU 2015-15 adds clarification to the guidance presented in ASU 2015-03, as that guidance did not address the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. We adopted this ASU along with the original guidance in ASU 2015-03 discussed above. The guidance in this ASU did not have an impact on our consolidated financial statements.
In September 2015, the FASB issued Accounting Standards Update 2015-16,Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, (“ASU 2015-16”). ASU 2015-16 was issued to simplify the accounting for adjustments made to provisional amounts recognized in a business combination and eliminates the requirement to retrospectively account for such adjustments. ASU 2015-16 requires an entity to present separately on the face of the income statement, or disclose in the notes, amounts recorded in current period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. We do not expect ASU 2015-16 to have a significant impact on our consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, (“ASU 2015-17”). ASU 2015-17 was issued to simplify the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. However, the requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The amendments in ASU 2015-17 may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We adopted this guidance in the fourth quarter of fiscal year 2015 and elected the prospective approach. Therefore, deferred taxes as of December 31, 2015 are recorded as long-term deferred tax assets and long-term deferred tax liabilities on the balance sheet. Balances as of December 31, 2014 have not been recast.
In January 2016, the FASB issued Accounting Standards Update 2016-01,Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, (“ASU 2016-01”). ASU 2016-01 address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The guidance in ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for financial statements of fiscal years that have not been previously issued. We are currently evaluating the impact of ASU 2016-01 on our consolidated financial statements.
Seasonality
Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most successful motion pictures have been released during summer months in the summer,U.S., extending from May to July, and during the holiday season, extending from early November through year-end. The timing of releases, however, has become less pronounced as distributors have begun releasing content more evenly throughout the year. In our Latin American markets, while Hollywood content has similar release dates as in the U.S., the local holidays and seasons can vary. The unexpected emergence of a hit film during other periods can alter this seasonality trend. The timing and quality of such film releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or for the same period in the following year.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to financial market risks, including changes in interest rates and foreign currency exchange rates.
Interest Rate Risk
We are currently party to variable rate debt facilities. An increase or decrease in interest rates would affect our interest expense relating to our variable rate debt facilities. At December 31, 2015,2018, there was an aggregate of approximately $579.0$202.9 million of variable rate debt outstanding under these facilities, which excludes $100.0 million of Cinemark USA, Inc.’s term loan debt that is hedged withafter giving effect to the Company’s interest rate swap agreementagreements discussed below. Based on the interest rates in effect on the variable rate debt outstanding at December 31, 2015,2018, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $5.8$2.0 million.
Our interest rate swap agreement qualifies for cash flow hedge accounting. The fair value of the interest rate swap is recorded on our consolidated balance sheet as an asset or liability with the effective portion of the interest rate swap’s gains or losses reported as a component of accumulated other comprehensive loss and the ineffective portion reported in earnings. Below is a summary of our interest rate swap agreement as of December 31, 2015:
Nominal Amount (in millions) | Effective Date | Pay Rate | Receive Rate | Expiration Date | ||||
$ 100.0 | November 2011 | 1.7150% | 1-month LIBOR | April 2016 |
The table below provides information about our fixed rate and variable rate long-term debt agreements as of December 31, 2015:2018:
Expected Maturity for the Twelve-Month Periods Ending December 31, | ||||||||||||||||||||||||||||||||||||
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2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total | Fair Value | Average Interest Rate | ||||||||||||||||||||||||||||
Fixed rate(1) | $ | 1.4 | $ | 1.4 | $ | 1.4 | $ | 1.4 | $ | — | $ | 1,230.0 | $ | 1,235.6 | $ | 1,229.5 | 5.3 | % | ||||||||||||||||||
Variable rate | 7.0 | 7.0 | 7.0 | 7.0 | 7.0 | 544.0 | 579.0 | 576.8 | 3.4 | % | ||||||||||||||||||||||||||
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Total debt(2) | $ | 8.4 | $ | 8.4 | $ | 8.4 | $ | 8.4 | $ | 7.0 | $ | 1,774.0 | $ | 1,814.6 | $ | 1,806.3 | ||||||||||||||||||||
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| Expected Maturity for the Twelve-Month Periods Ending December 31, |
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| Average |
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| Interest |
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| 2019 |
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| 2020 |
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| 2021 |
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| 2022 |
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| 2023 |
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| Thereafter |
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| Total |
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| Fair Value |
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| Rate |
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Fixed rate |
| $ | 1.4 |
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| $ | — |
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| $ | — |
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| $ | 400.0 |
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| $ | 755.0 |
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| $ | 450.0 |
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| $ | 1,606.4 |
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| $ | 1,574.7 |
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| 4.8 | % |
Variable rate |
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| 6.6 |
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| 6.6 |
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| 6.6 |
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| 6.6 |
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| 6.6 |
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| 169.9 |
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| 202.9 |
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| 199.4 |
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| 4.3 | % |
Total debt (1) |
| $ | 8.0 |
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| $ | 6.6 |
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| $ | 6.6 |
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| $ | 406.6 |
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| $ | 761.6 |
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| $ | 619.9 |
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| $ | 1,809.3 |
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| $ | 1,774.1 |
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(1) |
| Amounts are presented before adjusting for debt issuance costs. |
Interest Rate Swap Agreements
All of our current 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 9 to the consolidated financial statements for further discussion of the interest rate swap agreements.
Below is a summary of our interest rate swap agreements as of December 31, 2018:
Notional | ||||||||||
Amount | Effective Date | Pay Rate | Receive Rate | Expiration Date | ||||||
$175.0 million | December 31, 2018 | 2.751% | 1-Month LIBOR | December 31, 2022 | ||||||
$137.5 million | December 31, 2018 | 2.765% | 1-Month LIBOR | December 31, 2022 | ||||||
$137.5 million | December 31, 2018 | 2.746% | 1-Month LIBOR | December 31, 2022 | ||||||
$450.0 million |
Foreign Currency Exchange Rate Risk
We are also exposed to market risk arising from changes in foreign currency exchange rates as a result of our international operations. Generally, we export from the U.S. certain of the equipment and interior finish items and other operating supplies used by our international subsidiaries. A majority of the revenues and operating expenses of our international subsidiaries are transacted in the country’s local currency. U.S. GAAP requires that our subsidiaries use the currency of the primary economic environment in which they operate as their functional currency. If our subsidiaries operate in a highly inflationary economy, U.S. GAAP requires that the U.S. dollar be used as the functional currency for the subsidiary.subsidiary, which could impact future results of operations as reported. Currency fluctuations in the countries in which we operate result in us reporting exchange gains (losses) or foreign currency translation adjustments. Based upon our equity ownership in our international subsidiaries as of December 31, 2015,2018, holding everything else constant, a 10% immediate, simultaneous, unfavorable change in all of the foreign currency exchange rates to which we are exposed, would decrease the aggregate net book value of our investments in our international subsidiaries by approximately $30$46.0 million and would decrease the aggregate net income of our international subsidiaries for the yearsyear ended December 31, 2013, 2014 and 20152018 by approximately $7 million, $8 million and $7$5.9 million, respectively.
We deemed Argentina to be highly inflationary beginning July 1, 2018. A highly inflationary economy is defined as an economy with a cumulative inflation rate of approximately 100 percent or more over a three-year period. If a country’s economy is classified as highly inflationary, the financial statements of the foreign entity operating in that country must be remeasured to the functional currency of the reporting entity. The financial statements of the Company’s Argentina subsidiaries has been remeasured in U.S. dollars in accordance with ASC Topic 830, Foreign Currency Matters, effective beginning July 1, 2018.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are listed on the Index on page F-1 of this Form 10-K. Such financial statements and supplementary data are included herein beginning on page F-3.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of the Effectiveness of Disclosure Controls and Procedures
As of December 31, 2015,2018, under the supervision and with the participation of our principal executive officer and principal financial officer, we carried out an evaluation required by the Exchange Act 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 December 31, 2015,2018, 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 December 31, 20152018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control framework and processes are designed to provide reasonable assurance to management and the board of directors regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements in accordance with the accounting principles generally accepted in the U.S. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 20152018 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, inInternal Control—Integrated Framework (2013). As a result of this assessment, management concluded that, as of December 31, 2015,2018, our internal control over financial reporting was effective.
Certifications of our Chief Executive Officer and our Chief Financial Officer, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Annual Report. This “Controls"Controls and Procedures”Procedures" section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, with direct access to the Company’s board of directors through its Audit Committee, have audited the consolidated financial statements prepared by the Company. Their report on the consolidated financial statements is included in Part II, Item 8. Financial Statements and Supplementary Data.
Limitations on Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
None.
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Item 10. Directors, Executive Officers and Corporate Governance
Incorporated by reference to Cinemark Holdings, Inc.’s proxy statement for its annual stockholders meeting (under the headings “Election of Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance”, “Corporate Governance” and “Executive Officers”) to be held on May 26, 201623, 2019 and to be filed with the SEC within 120 days after December 31, 2015.2018
Item 11. Executive Compensation
Incorporated by reference to Cinemark Holdings, Inc.’s proxy statement for its annual stockholders meeting (under the heading “Executive Compensation”) to be held on May 26, 201623, 2019 and to be filed with the SEC within 120 days after December 31, 2015.2018.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated by reference to Cinemark Holdings, Inc.’s proxy statement for its annual stockholders meeting (under the headings “Security Ownership of Certain Beneficial Owners and Management”) to be held on May 26, 201623, 2019 and to be filed with the SEC within 120 days after December 31, 2015.2018.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference to Cinemark Holdings, Inc.’s proxy statement for its annual stockholders meeting (under the heading “Certain Relationships and Related Party Transactions” and “Corporate Governance”) to be held on May 26, 201623, 2019 and to be filed with the SEC within 120 days after December 31, 2015.2018.
Item 14. Principal Accounting Fees and Services
Incorporated by reference to Cinemark Holdings, Inc.’s proxy statement for its annual stockholders meeting (under the heading “Board Committees – Audit Committee – Fees Paid to Independent Registered Public Accounting Firm”Firm”) to be held on May 26, 201623, 2019 and to be filed with the SEC within 120 days after December 31, 2015.2018.
Item 15. Exhibits, Financial Statement Schedules
(a) Documents Filed as Part of this Report
1.
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