CINEMARK HOLDINGS, INC. The following discussion and analysis should be read in conjunction with the financial statements and accompanying notes included in this report. This discussion may contain forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" for a discussion of the uncertainties and risks associated with these statements. Discussion regarding our financial condition and results of operations for 2020 compared with 2019 is included in Item 7 of our 2020 Annual Report on Form 10-K filed onFebruary 26, 2021 . Overview We are a leader in the motion picture exhibition industry, with theatres in theU.S. ,Brazil ,Argentina ,Chile ,Colombia ,Ecuador ,Peru ,Honduras ,El Salvador ,Nicaragua ,Costa Rica ,Panama ,Guatemala ,Bolivia ,Curacao andParaguay . As ofDecember 31, 2021 , we managed our business under two reportable operating segments -U.S. markets and international markets. See Note 21 to our consolidated financial statements.
Impact of COVID-19 Pandemic
The COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry. The social and economic effects have been widespread. We temporarily closed our theatres in theU.S. andLatin America beginning in March of 2020 at the onset of the COVID-19 outbreak. Additionally, we implemented various cash preservation strategies, including, but not limited to, temporary personnel and salary reductions, halting non-essential operating and capital expenditures, negotiating modified timing and/or abatement of contractual payments with landlords and other major suppliers, and the suspension of our quarterly dividend. Throughout 2020 and 2021 we reopened theatres as soon as local restrictions and the status of the COVID-19 pandemic would allow. As ofDecember 31, 2021 , all of our domestic and international theatres were open. New film content returned inApril 2021 and expanded throughout the year leading up to the December release of Spider-Man: No Way Home, which is now an all-time top 10 film in terms of worldwide box office. The industry's recovery to historical levels of new film content, both in terms of the number of new films and box office performance, is still underway, as the industry also continues to adjust to evolving theatrical release windows, competition from streaming and other delivery platforms, supply chain delays, inflationary pressures, labor shortages, wage rate pressures and other economic factors. Revenues and Expenses We generate revenue primarily from filmed entertainment box office receipts and concession sales with additional revenue from screen advertising, screen rental and other revenue streams, such as transactional fees, vendor marketing promotions, studio trailer placements, meeting rentals and electronic video games located in some of our theatres. We also offer alternative entertainment, such as theMetropolitan Opera , concert events, in-theatre gaming, live and pre-recorded sports programs and other special events in our theatres throughFathom Entertainment (operated byAC JV, LLC ). NCM provides our domestic theatres with various forms of in-theatre advertising. Our Flix Media subsidiaries provide screen advertising and alternative content for our international circuit and to other international exhibitors. Films released during the year endedDecember 31, 2021 included Shang-Chi and the Legend of the Ten Rings, Venom: Let There Be Carnage, Black Widow, F9: The Fast Saga, Eternals, No Time to Die, A Quiet Place Part II, Ghostbusters: Afterlife, Free Guy and Jungle Cruise and Spider-Man: No Way Home, among other films. Currently, films scheduled for release in 2022 include the highly anticipated sequel Avatar 2, as well as Doctor Strange in the Multiverse of Madness, Thor: Love and Thunder, Black Panther: Wakanda Forever, The Batman,Jurassic World : Dominion, Lightyear, Top Gun: Maverick, Minions: The Rise of Gru, Mario, Black Adam, Aquaman 2,Strange World and Spider-Man: Across the Spider-Verse, among others. As the industry continues to evolve and recover as the impact of the COVID-19 pandemic wanes, film release schedules, the availability and length of exclusive theatrical release windows, streaming release strategies and consumer sentiment are continuing to evolve and may have a direct impact on industry box office results.
Film rental costs are variable in nature and fluctuate with our admissions revenue. Film rental costs as a percentage of revenue are generally higher for periods in which more blockbuster films are released. The Company received virtual print fees from studios for certain of its international locations, which are included as a contra-expense
22
--------------------------------------------------------------------------------
in film rental and advertising costs on the consolidated statements of income.
However, these costs were fully recovered during 2021 and virtual print fees
will not be received in future periods. Advertising costs, which are expensed as
incurred, are primarily related to campaigns for new and remodeled theatres, our
loyalty and subscription programs, brand advertising and reengaging our
audiences as our theatres reopened and new film content was released. These
expenses vary depending on the timing and length of such campaigns.
Concession supplies expense is variable in nature and fluctuates with our
concession revenue and product mix. Supply chain interruptions and inflationary
pressures have impacted product costs and product availability in the near term.
We source products from a variety of partners around the world to minimize
supply chain interruptions and price increases, wherever possible.
Although salaries and wages include a fixed cost component (i.e. the minimum
staffing costs to operate a theatre facility during non-peak periods), salaries
and wages tend to move in relation to revenue as theatre staffing is adjusted to
respond to changes in attendance. Staffing levels may vary based on the
amenities offered at a location, such as full service restaurants, bars or
expanded food and beverage options. In certain international locations, staffing
levels are also subject to local regulations. Labor market conditions and
inflationary pressures have recently driven increases in wages across our labor
base and similar increases may continue in the future.
Facility lease expense is primarily a fixed cost at the theatre level as most of
our facility leases require a fixed monthly minimum rent payment. Certain leases
are subject to percentage rent only, while others are subject to percentage rent
in addition to their fixed monthly rent if a target annual performance level is
achieved. Facility lease expense as a percentage of revenue is also affected by
the number of theatres under operating leases, the number of theatres under
finance leases and the number of owned theatres.
Utilities and other costs include both fixed and variable costs and primarily
consist of utilities, property taxes, janitorial costs, credit card fees, third
party ticket sales commissions, repairs and maintenance expenses, security
services and expenses for the maintenance and monitoring of projection and sound
equipment.
General and administrative expenses to support the overall management of the
Company are primarily fixed in nature with certain variable expenses. Fixed
expenses include salaries and wages and benefits costs for our corporate office
personnel, facility expenses for our corporate and other offices, software
maintenance costs and audit fees. Some variable expenses may include incentive
compensation, consulting and legal fees, supplies and other costs that are not
specifically associated with the operations of our theatres.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with generally accepted accounting principles in theU.S. , orU.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 and estimates, 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
Our patrons 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 revenue when the showtime for a purchased movie ticket has passed. Concession revenue is recognized when products are sold to the consumer. Other revenues primarily consist of screen advertising, screen rental revenue, promotional income, studio trailer placements and transactional fees. Except for NCM screen advertising advances (see Note 8 to our consolidated financial statements), these revenues are generally recognized when we have performed the related services. We sell gift cards and discount ticket vouchers, the proceeds from which are recorded as deferred revenue. Deferred revenue for gift cards and discount ticket vouchers is recognized when they are redeemed for concession items or, if redeemed for movie tickets, when the showtime has passed. We generally record breakage revenue on gift cards and discount ticket vouchers based on redemption activity and historical experience with unused balances. We offer a subscription program in theU.S. whereby patrons can pay a monthly or annual fee to receive a monthly credit for use towards a future movie ticket purchase. We record the subscription program fees as deferred revenue and record admissions revenue when the showtime for a movie ticket purchased with a credit has passed. We have loyalty programs in theU.S. and many of our international locations that either have a prepaid annual 23 -------------------------------------------------------------------------------- fee or award points to customers as purchases are made. For those loyalty programs that have a prepaid annual fee, we recognize the fee collected as other revenue on a straight-line basis over the term of the program. For those loyalty programs that award points to customers based on their purchases, we record a portion of the original transaction proceeds as deferred revenue based on the number of reward points issued to customers and recognize the deferred revenue when the customer redeems such points. The value of loyalty points issued is based on the estimated fair value of the rewards offered. We record breakage revenue on deferred loyalty and subscription revenue generally upon the expiration of points and subscription credits, respectively. Advances collected on concession and other contracts are deferred and recognized during the period in which we satisfy the related performance obligations, which may differ from the period in which the advances are collected. Film rental costs are subject to the film licensing arrangement and accrued based on the applicable box office receipts and either; 1) a sliding scale formula, which is generally established prior to the opening of the film, 2) firm terms or 3) estimates of the final settlement rate, which occurs at the conclusion of the film 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 for its full run. 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. The settlement process allows for negotiation of film rental fees upon the conclusion of the film's theatrical run based upon how the film performs. Estimates are based on the expected success of a film. The success of a film can generally be determined a few weeks after a film is released when the 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. 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, the timing of which is based on the lease agreement, percentage rent expense is adjusted at that time. 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. Leasehold improvements for which we pay, and to which we have title, are amortized over the lesser of their useful life or the remaining lease term.
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:
•
actual theatre level cash flows;
•
budgeted or forecast theatre level cash flows;
•
theatre property and equipment carrying values;
•
operating lease right-of-use asset carrying values;
•
amortizing intangible asset carrying values;
•
the age of a recently built theatre;
•
competitive theatres in the marketplace;
•
the impact of recent ticket price changes;
•
the impact of recent theatre remodels or other substantial improvements;
•
available lease renewal options; and
•
other factors considered relevant in our assessment of impairment of individual theatre assets.
Long-lived assets are evaluated for impairment on a 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
24
--------------------------------------------------------------------------------
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 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 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. 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.
See further discussion of our impairment evaluation policy in Note 1 of our
consolidated financial statements. See a summary of the impairment evaluations
performed and impairments recorded during the years ended December 31, 2019 ,
2020 and 2021 in Note 11 to our consolidated financial statements.
Impairment of
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 regions in theU.S. and each of its international countries withHonduras ,El Salvador ,Nicaragua ,Costa Rica ,Panama andGuatemala considered one reporting unit (the Company does not have goodwill recorded for all of its international locations). Under ASC Topic 350,Goodwill , Intangibles and Other, or ASC Topic 350, we may perform a qualitative impairment assessment or a quantitative impairment assessment of our goodwill. 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. 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 fair value. 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 theU.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. A qualitative assessment considers 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.
See further discussion of our impairment evaluation policy in Note 1 of our
consolidated financial statements. See a summary of the impairment evaluations
performed during the year ended
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
25
--------------------------------------------------------------------------------
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. See Note 19 to our consolidated financial statements for further
discussion of income taxes.
Accounting for Investment in
We have an investment in NCM. NCM operates a digital in-theatre network in theU.S. for providing cinema advertising and non-film events. Upon joining NCM, we entered into an Exhibitor Services Agreement, orESA , with NCM pursuant to which NCM provides advertising, promotion and event services to our theatres. OnFebruary 13, 2007 , National CineMedia, Inc., orNCM 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 theNCM Inc. initial public offering, we amended our operating agreement and the Exhibitor Services Agreement, orESA , with NCM and received proceeds related to the modification of theESA and our sale of certain of shares in NCM. TheESA modification reflected a shift from circuit share expense under the prior Exhibitor Services Agreement, which obligated NCM to pay us 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 theESA modification as deferred revenue. As a result of the proceeds received as part of theNCM, 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'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'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 ofFebruary 13, 2007 betweenNCM, 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 NCM. The Company evaluated the receipt of the additional common units in NCM 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 theESA . 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.
See Note 8 to our consolidated financial statements for further discussion of our investment in NCM.
26
--------------------------------------------------------------------------------Results of Operations
The following table sets forth, for the periods indicated, the amounts for certain items reflected in our consolidated statements of income (loss) along with each of those items as a percentage of revenues.
Year Ended December 31,
2019 2020 2021
Operating data (in millions): Revenues Admissions$ 1,805.3 $ 356.5 $ 780.0 Concession 1,161.1 231.1 561.7 Other 316.7 98.7 168.8 Total revenues$ 3,283.1 $ 686.3 $ 1,510.5 Cost of operations Film rentals and advertising 1,003.8 186.8 415.0 Concession supplies 206.5 48.6 97.9 Salaries and wages 410.1 145.0 232.9 Facility lease expense 346.1 279.8 280.0 Utilities and other 474.7 229.5 282.9 General and administrative expenses 173.4 127.6
161.1
Depreciation and amortization 261.2 259.8
265.4
Impairment of long-lived assets 57.0 152.7
20.8
Restructuring costs - 20.4 (1.0 ) (Gain) loss on disposal of assets and other 12.0 (8.9 ) 8.0 Total cost of operations 2,944.8 1,441.3 1,763.0 Operating income (loss)$ 338.3 $ (755.0 ) $ (252.5 ) Operating data as a percentage of total revenues: Revenues Admissions 55.0 % 51.9 % 51.6 % Concession 35.4 % 33.7 % 37.2 % Other 9.6 % 14.4 % 11.2 % Total revenues 100.0 % 100.0 % 100.0 % Cost of operations (1) Film rentals and advertising 55.6 % 52.4 % 53.2 % Concession supplies 17.8 % 21.1 % 17.4 % Salaries and wages 12.5 % N/A 15.4 % Facility lease expense 10.5 % N/A 18.5 % Utilities and other 14.5 % N/A 18.7 % General and administrative expenses 5.3 % N/A 10.7 % Depreciation and amortization 8.0 % N/A 17.6 % Impairment of long-lived assets 1.7 % N/A 1.4 % Restructuring costs - % N/A (0.1 )% (Gain) loss on disposal of assets and other 0.4 % N/A 0.5 % Total cost of operations 89.7 % N/A 116.7 % Operating income (loss) 10.3 % N/A (16.7 )% Average screen count (month end average) 6,072 N/A
5,890
Revenues per average screen (dollars)$ 540,695 N/A $
256,445
(1)
All costs are expressed as a percentage of total revenues, except film rentals
and advertising, which are expressed as a percentage of admissions revenue and
concession supplies, which are expressed as a percentage of concession revenue.
Certain values are considered not applicable ("N/A") during 2020 as they are not
comparable due to theatre closures as a result of the COVID-19 pandemic.
27
--------------------------------------------------------------------------------
Comparison of Years Ended
Year endedDecember 31, 2020 - All of our domestic and international theatres were temporarily closed effectiveMarch 17, 2020 andMarch 18, 2020 , respectively, due to the COVID-19 pandemic. We began reopening our domestic theatres inJune 2020 and began reopening our international theatres inAugust 2020 . As ofDecember 31, 2020 , we had 217 domestic theatres and 129 international theatres reopened.
Year ended
Revenues. 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)
2021 2020 % Change 2021 2020 % Change 2021 % Change 2021 2020 % ChangeAdmissions revenue (1)$671.7 $291.6 130.3%$108.3 $64.9 66.9%$117.0 80.3%$780.0 $356.5 118.8% Concession revenue (1)$482.8 $189.6 154.6%$78.9 $41.5 90.1%$84.7 104.1%$561.7 $231.1 143.1% Other revenues (1)(2)$139.1 $75.7 83.8%$29.7 $23.0 29.1%$32.4 40.9%$168.8 $98.7 71.0% Total revenues (1)(2)$1,293.6 $556.9 132.3%$216.9 $129.4 67.6%$234.1 80.9%$1,510.5 $686.3 120.1% Attendance (1) 73.0 34.9 109.2% 32.6 19.4 68.0% 105.6 54.3 94.5% Average ticket price (1)$9.20 $8.36 10.0%$3.32 $3.35 (0.9)%$3.59 7.2%$7.39 $6.57 12.5% Concession revenues per patron (1)$6.61 $5.43 21.7%$2.42 $2.14 13.1%$2.60 21.5%$5.32 $4.26 24.9% (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 21 to 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 in 2020. We translate the results of our international operating segment from local currencies intoU.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. With a more consistent flow of new film content during the year, attendance rebounded to 73.0 million patrons generating$671.7 million of admissions revenue and$482.8 million of concession revenue. Our average ticket price increased 10% to$9.20 during 2021 compared with$8.36 during 2020, primarily a result of pricing, ticket type mix and optimized operating hours. Our concession revenues per patron increased 21.7% to$6.61 during 2021 compared with$5.43 during 2020 driven by pricing and operating hours more conducive to concession purchases. Other revenues for 2021 of$139.1 million included the amortization of NCM screen advertising advances, as well as screen rental revenue, promotional and trailer placement income related to the recent new film releases and transactional fees, all of which were lower in 2020 as a result of limited new film content and reduced attendance.
•
International. We showed new releases during 2021, beginning in May, as well as some library content in our international theatres, resulting in 32.6 million in attendance,$108.3 million of admissions revenues and$78.9 million of concession revenues. Our average ticket price for 2021 was$3.32 as reported,$3.59 in constant currency, compared with$3.35 for 2020. Concession revenues per patron for 2021 was$2.42 as reported,$2.60 in constant currency, compared with$2.14 in 2020. The increase in reported concession revenues per patron was a result of increased purchase incidence of our core concession items, the impact of inflation and new premium combo offerings. Other revenues primarily included screen advertising and loyalty membership revenues and were impacted by increased attendance in 2021 compared with 2020. 28 -------------------------------------------------------------------------------- Cost of Operations. The table below summarizes certain of our theatre operating costs by reportable operating segment (in millions) for the years endedDecember 31, 2020 and 2021. U.S. Operating Segment International Operating Segment Consolidated Constant Currency 2021 2020 2021
2020 2021 (1) 2021 2020 Film rentals and advertising$ 360.0 $ 155.3 $ 55.0 $ 31.5 $ 59.6 $ 415.0 $ 186.8 Concession supplies 79.5 36.9 18.4 11.7 19.8 97.9 48.6 Salaries and wages 198.2 113.8 34.7 31.2 37.4 232.9 145.0 Facility lease expense 242.2 247.0 37.8 32.8 39.8 280.0 279.8 Utilities and other 232.1 180.3 50.8 49.2 54.9 282.9 229.5 (1) Constant currency expense amounts, which are non-GAAP measurements, were calculated using the average exchange rates for the corresponding months for 2020. We translate the results of our international operating segment from local currencies intoU.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 for 2021 were 53.6% of admissions revenue compared with 53.3% for 2020. The rate for 2021 was impacted by new film content released during 2021, and specifically the highly successful Spiderman: No Way Home released inDecember 2021 . In addition, promotion and advertising expense increased for 2021 as a result of aforementioned new film content, as well as promotions for ourMovie Club and Movie Club Platinum programs. Concession supplies expenses for 2021 were 16.5% of concessions revenue compared with 19.5% of concession revenues for 2020. The concession supplies rate for 2021 reflected modest price increases compared withWelcome Back pricing during 2020, the impact of a favorable product mix, and a reduced level of waste related to the disposal of perishable goods. Salaries and wages increased to$198.2 million for 2021 as a result of increased operating hours and increased staffing to service growing attendance demand. Salaries and wages were also impacted by minimum wage and market rate increases. Facility lease expense, which is primarily fixed in nature, decreased$4.8 million primarily due to the permanent closure of certain theatres and a decline in common area maintenance costs. Utilities and other costs increased$51.8 million , as many of these costs, such as janitorial costs, security expenses, credit card fees and repairs and maintenance, are variable in nature and were impacted by increased operating hours and increased attendance for 2021.
•
International. Film rentals and advertising costs for 2021 were 50.8% of admissions revenue compared with 48.5% for 2020. The increase in the film rentals and advertising rate was a result of the release of new film content in 2021 and a decrease in virtual print fees collected from studios. Concession supplies expenses were 23.3% of concessions revenue compared with 28.2% of concession revenues for 2020, driven by a reduced level of waste related to the disposal of perishable goods and a higher mix of premium concession products. Salaries and wages increased$3.5 million as reported for 2021 compared with 2020 as a result of increased operating hours, increased staffing to service growing attendance demand in 2021 and increases in wage rates due to inflationary pressures in certain countries in which we operate. Facility lease expense increased$5.0 million as reported due to the impact of rent abatements negotiated during 2020 while theatres were closed and higher percentage rent as a result of increased revenues. Utilities and other costs increased$1.6 million as reported, as many of these costs are variable in nature, such as credit card fees, security expenses, janitorial costs and repairs and maintenance, and were impacted by increased operating hours and increased attendance for 2021. These expenses, as reported, were also impacted by exchange rates in each of the countries in which we operate. General and Administrative Expenses. General and administrative expenses increased to$161.1 million for 2021 compared with$127.6 million for 2020. The increase is primarily due to the temporary salary reductions and furloughs for our corporate workforce during 2020, increased incentive and share based award compensation expense as a result of certain retention measures and the acceleration of share based award compensation expense for certain equity awards. See Note 17 for discussion of share based award activity. Depreciation and Amortization. Depreciation and amortization expense increased to$265.4 million for 2021 compared with$259.8 million for 2020 primarily due to the digital projectors received in a non-cash distribution from 29 --------------------------------------------------------------------------------
DCIP during the fourth quarter of 2020 and the impact of new theatres. See Note 9 to the consolidated financial statements for discussion of the non-cash distribution from DCIP.
Impairment of Long-Lived Assets. We recorded asset impairment charges of$20.8 million during 2021 and$152.7 million during 2020. The asset impairment charges recorded during 2021 impacted seven countries and were primarily related to certain theatres that were not showing sufficient recovery after reopening when compared with the rest of our theatre circuit. The asset impairment charges recorded during 2020 impacted eleven countries and were primarily a result of the prolonged impact of the COVID pandemic on our operations, as some theatres remained closed and film content continued to shift into future periods, both of which impacted our estimated future cash flows for theatres. See Note 11 to our consolidated financial statements. Restructuring costs. Restructuring costs of$20.4 million were recorded during 2020 related to a restructuring plan implemented during the second quarter of 2020. The credit of$(1.0) million to restructuring costs during 2021 was primarily due to adjustments based on final facility lease payments for certain closed theatres as compared with original recorded amounts. See Note 3 to our consolidated financial statements for further discussion. (Gain) Loss on Disposal of Assets and Other. We recorded a loss on disposal of assets and other of$8.0 million during 2021 compared with a gain of$(8.9) million during 2020. Activity for 2021 was primarily related to a litigation settlement reserve and the write-off of certain digital projectors that were replaced with laser projectors, partially offset by gains on the sales of excess land parcels. Activity for 2020 was primarily due to a favorable litigation outcome for a case that was previously accrued, partially offset by the retirement of assets related to theatre remodels. Interest Expense. Interest expense, which includes amortization of debt issuance costs and amortization of accumulated losses for swap amendments, increased to$149.7 million during 2021 compared with$129.9 million for 2020. The increase was primarily due to the issuance of notes discussed in Note 13 to our consolidated financial statements. Loss on Extinguishment of Debt. We recorded a loss on extinguishment of debt of$6.5 million during 2021 related to the refinancing of our 5.125% Senior Notes and 4.875% Senior Notes, including the write-off of the related unamortized debt issuance costs and legal and other fees paid. See Note 13 to our consolidated financial statements. Foreign Currency Exchange Loss. We recorded a foreign currency exchange loss of$1.3 million during 2021 and$4.9 million during 2020 primarily related to intercompany transactions and changes in exchange rates from original transaction dates until cash settlement. See Notes 1 and 15 to our consolidated financial statements for discussion of foreign currency translation. Distributions from NCM. We recorded distributions from NCM of$0.1 million during 2021 compared with$7.0 million recorded during 2020. These distributions were in excess of the carrying value of our Tranche 1 investment. Distributions from NCM decreased beginning in the second quarter of 2020 primarily due to the impact of the COVID-19 pandemic as discussed in Note 3 to our consolidated financial statements. See Note 8 to our consolidated financial statements for discussion of our investment in NCM. Cash and Non-Cash Distributions from DCIP. We recorded cash distributions from DCIP of$13.1 million during 2021. These distributions were in excess of the carrying value of our investment in DCIP. We recorded a non-cash distribution of$12.9 million during 2020 related to digital projectors distributed to us from DCIP. See Note 9 to our consolidated financial statements for discussion of our investment in DCIP. Equity in Loss of Affiliates. We recorded equity in loss of affiliates of$25.0 million during 2021 compared with$38.7 million during 2020. Our equity method investees are recovering from the impacts of the COVID-19 pandemic. See Notes 8 and 9 to our consolidated financial statements for information about our equity investments. Income Taxes. An income tax benefit of$(16.8) million was recorded for 2021 compared with an income tax benefit of$(309.4) million for 2020. The effective tax rate was approximately 3.8% for 2021 compared with 33.4% for 2020. As a result of continued losses in 2021, the 2021 effective tax rate was negatively impacted by valuation allowances related to certain foreign tax credits and deferred tax assets for which the ultimate realization is uncertain. The effective tax rate for 2020 reflected the carryback of 2020 losses to tax years that had a 35% federal tax rate under the provisions of the CARES Act. We have recorded an income tax receivable of$46.6 million atDecember 31, 2021 and have received cash tax refunds of$137.8 million during the year endedDecember 31, 2021 . See Note 19 to our consolidated financial statements for further discussion of income taxes. 30 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Operating Activities
We primarily collect our revenue in cash, mainly through box office receipts and the sale of concessions. Our revenues are generally received in cash prior to the payment of related expenses; therefore, we have an operating "float" and historically have not required traditional working capital financing. We temporarily closed all of our theatres duringMarch 2020 and funded operating expenses with cash on hand and new financing discussed below under Financing Activities while theatres were closed and as we reopened our theatres. During the latter part of 2021, as we began to show a steady stream of new film content and our theatres were returning to more consistent operating hours, we began to generate positive cash flows from operations and transition back to our historical working capital "float" position. However, our working capital position will continue to fluctuate based on seasonality, the timing of interest payments on our long-term debt as well as timing of payment of other operating expenses that are paid annually or semi-annually, such as property and other taxes and incentive bonuses. We believe our existing cash and expected cash flows from operations will be sufficient to meet our working capital, capital expenditures, and expected cash requirements from known contractual obligations for the next twelve months and beyond. Cash provided by (used for) operating activities amounted to$(330.1) million and$166.2 million for the years endedDecember 31, 2020 and 2021, respectively. The increase in cash provided by operating activities was primarily a result of increased attendance as theatres reopened and new film product was released, the receipt of income tax refunds, discussed at Income Taxes above, as a result of the carry back of net operating losses (see Note 19 to our financial statements) and the timing of payments to vendors for revenues generated in the latter part of 2021. As discussed in Note 4 to our consolidated financial statements, we negotiated the deferral of a portion of our rent and other lease-related payments for part of 2020 and the first quarter of 2021 with many of our landlords. We began to repay previously deferred amounts during 2020 and continued to make scheduled repayments during 2021. As ofDecember 31, 2021 , approximately$31.9 million in deferred lease payments remain outstanding. The majority of these remaining deferred amounts will be repaid during 2022.
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$83.4 million and$89.3 million for the years endedDecember 31, 2020 and 2021, respectively. The increase in cash used for investing activities was primarily due to higher capital expenditures in 2021 as we resumed some non-essential projects after the suspension of such activities in 2020. Below is a summary of capital expenditures by category for the periods indicated (in millions): Year Ended December 31, 2020 2021 New theatres$ 25.9 $ 38.0 Existing theatres$ 58.0 $ 57.5 Total capital expenditures$ 83.9 $ 95.5 31
-------------------------------------------------------------------------------- We operated 522 theatres with 5,868 screens worldwide as ofDecember 31, 2021 . Theatres and screens built and closed during the year endedDecember 31, 2021 were as follows: December 31, 2020 Built Closed December 31, 2021U.S. Theatres 331 3 (13 ) 321 Screens 4,507 42 (141 ) 4,408 International Theatres 200 4 (3 ) 201 Screens 1,451 28 (19 ) 1,460 Worldwide Theatres 531 7 (16 ) 522 Screens 5,958 70 (160 ) 5,868 As ofDecember 31, 2021 , we had the following signed commitments (costs in millions): Theatres Screens Estimated Cost (1) Expected to open during 2022 U.S. 2 28 $ 20.9 International 1 19 7.7 Total during 2022 3 47 28.6 Expected to open subsequent to 2022 U.S. 3 34 20.6 International 6 36 15.6 Total subsequent to 2022 9 70 36.2 Total commitments at December 31, 2021 12 117 $ 64.8
(1)
We expect approximately$28.6 million ,$30.3 million , and$5.9 million to be paid during 2022, 2023 and 2024, respectively. The timing of payments is subject to change as a result of construction timing or other delays. Actual expenditures for continued theatre development, remodels and acquisitions are subject to change based upon the availability of attractive opportunities. During the next twelve months and the foreseeable future, we plan to fund capital expenditures for our continued development with cash flow from operations and, if needed, borrowings under our senior secured credit facility, proceeds from debt issuances, sale leaseback transactions and/or sales of excess real estate. Financing Activities Cash provided by (used for) financing activities was$584.4 million and$(19.9) million during the years endedDecember 31, 2020 and 2021, respectively. The decrease in cash provided by financing activities was primarily due to the issuance of notes and borrowings by certain of our international subsidiaries during 2020 discussed further below. We, at the discretion of the board of directors and subject to applicable law, may pay dividends on our common stock. The amount, if any, of the dividends to be paid in the future will depend upon our then available cash, anticipated cash needs, overall financial condition, loan agreement restrictions as discussed below, future prospects for earnings and cash flows, as well as other relevant factors. We suspended our quarterly dividend inMarch 2020 due to the impact of the COVID-19 pandemic.
We may from time to time, subject to compliance with our debt instruments, purchase our debt securities on the open market depending upon the availability and prices of such securities.
32
--------------------------------------------------------------------------------
Long-term debt consisted of the following as of December 31, 2020 and 2021 (in
millions):
December 31,
2020 2021$ 460.0 $
460.0
Cinemark USA, Inc. term loan due 2025 639.7
633.1
Cinemark USA, Inc. 8.750% senior secured notes due 2025 250.0
250.0
Cinemark USA, Inc. 5.875% senior notes due 2026 -
405.0
Cinemark USA, Inc. 5.250% senior notes due 2028 -
765.0
Cinemark USA, Inc. 5.125% senior notes due 2022 400.0
-
Cinemark USA, Inc. 4.875% senior notes due 2023 755.0 - Other 23.2 30.2 Total long-term debt$ 2,527.9 $ 2,543.3 Less current portion 18.1 24.3
Subtotal long-term debt, less current portion
2,519.0
Less: Debt issuance costs and discounts, net of accumulated amortization (1) 132.7
43.0
Long-term debt, less current portion, net of debt issuance costs and discounts$ 2,377.1 $
2,476.0
(1)
See discussion of ASU 2020-06 in Note 13 for accounting treatment of the debt discounts related to the 4.500% convertible senior notes.
As of
As ofDecember 31, 2021 , our long-term debt obligations, scheduled interest payments on long-term debt, future minimum lease obligations under non-cancelable operating and finance leases, deferred rent payments due as a result of amended lease terms, scheduled interest payments under finance leases and other obligations for each period indicated are summarized as follows: Payments Due by Period (in millions) Less Than After Contractual Obligations Total One Year 1 - 3 Years 3 - 5 Years 5 Years Long-term debt (1)$ 2,543.3 $ 24.3 $ 19.3 $ 1,728.5 $ 771.2 Scheduled interest payments on long-term debt (2)$ 587.6 129.8 255.8 141.7 60.3 Operating lease obligations (3)$ 1,544.9 274.0 473.2 349.9 447.8 Finance lease obligations (3)$ 144.1 19.8 37.2 28.4 58.7 Deferred rent (4)$ 31.9 31.9 - - - Purchase and other commitments (5)$ 6.7 4.3 1.0 1.0 0.4 Liability for uncertain tax positions (6) $ - - - - - Total obligations$ 4,858.5 $ 484.1 $ 786.5 $ 2,249.5 $ 1,338.4 (1) Amounts are presented before adjusting for unamortized 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 onDecember 31, 2021 . (3) Amounts include both scheduled principal and interest payments on leases commenced prior toDecember 31, 2021 . Amounts do not include approximately$90.0 million of payments under signed lease agreements which have not commenced and the timing of which cannot be reasonably estimated. See Note 4 to our consolidated financial statements for discussion of lease obligations. (4) See discussion at Lease Deferrals and Abatements at Note 4 to our consolidated financial statements. (5) Includes estimated capital expenditures associated with the construction of new theatres to which we were committed as ofDecember 31, 2021 , obligations under employment agreements, which are our only contractual human capital costs, and contractual purchase commitments. (6) The long-term portion of our liability for uncertain tax positions of$45.9 million is not included above because we cannot make a reliable estimate of the timing of the related cash payments. There was no amount recorded for short-term uncertain tax positions on the consolidated balance sheet as ofDecember 31, 2021 . 33 --------------------------------------------------------------------------------
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Senior Secured Credit Facility
Cinemark USA, Inc. has a senior secured credit facility that includes a$700.0 million term loan and a$100.0 million revolving line of credit, or the Credit Agreement. Under the amended Credit Agreement, quarterly principal payments of$1.6 million are due on the term loan throughDecember 31, 2024 , with a final principal payment of$613.4 million due onMarch 29, 2025 .Cinemark USA, Inc. had$100.0 million available borrowing capacity on the revolving line of credit as ofDecember 31, 2021 . Interest on the term loan accrues atCinemark USA, Inc.'s option at: (A) the base rate equal to the greater of (1) the US "Prime Rate" as quoted in The Wall Street Journal or if no such rate is quoted therein, in aFederal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin of 0.75% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin of 1.75% per annum. Interest on the revolving credit line accrues, at our option, at: (A) a base rate equal to the greater of (1) the US "Prime Rate" as quoted in The Wall Street Journal or if no such rate is quoted therein, in aFederal Reserve Board statistical release, (2) the federal funds effective rate plus 0.50%, and (3) a one-month Eurodollar-based rate plus 1.0%, plus, in each case, a margin that ranges from 0.50% to 1.25% per annum, or (B) a Eurodollar-based rate for a period of 1, 2, 3, 6, 9 or 12 months plus a margin that ranges from 1.50% to 2.25% per annum. The margin of the revolving credit line is determined by the consolidated net senior secured leverage ratio as defined in the Credit Agreement.Cinemark USA, Inc.'s obligations under the Credit Agreement are guaranteed byCinemark Holdings, Inc. and certain ofCinemark USA, Inc.'s domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all ofCinemark USA, Inc.'s and the guarantors' personal property, including, without limitation, pledges of all ofCinemark USA, Inc.'s capital stock, all of the capital stock of certain ofCinemark USA, Inc.'s domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries. The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions onCinemark USA, Inc.'s ability, and in certain instances, its subsidiaries' and our ability, to consolidate or merge or liquidate, wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay dividends or repurchase stock; and make capital expenditures and investments. IfCinemark USA, Inc. has borrowings outstanding on the revolving credit line, it is required to satisfy a consolidated net senior secured leverage ratio covenant as defined in the Credit Agreement, not to exceed 4.25 to 1. See below for discussion of covenant waivers. The dividend restriction contained in the Credit Agreement prevents the Company and any of its subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) the Company is not in default, and the distribution would not causeCinemark USA, Inc. to be in default, under the Credit Agreement; and (2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made sinceDecember 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 byCinemark Holdings, Inc. orCinemark USA, Inc. as common equity sinceDecember 18, 2012 , (b)Cinemark USA, Inc.'s consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the Credit Agreement, and (c) certain other defined amounts, or collectively, the Applicable Amount. As ofDecember 31, 2021 ,Cinemark USA, Inc. could have distributed up to approximately$2.7 billion to its parent company and sole stockholder,Cinemark Holdings, Inc. OnApril 17, 2020 , in conjunction with the issuance of the 8.750% Secured Notes discussed below, we obtained a waiver of the leverage covenant from the majority of revolving lenders under the Credit Agreement for the fiscal quarters endingSeptember 30, 2020 andDecember 31, 2020 . The waiver was subject to certain liquidity thresholds, restrictions on investments and the use of the Applicable Amount. OnAugust 21, 2020 , in conjunction with the issuance of the 4.500% Convertible Senior Notes discussed below, we further amended the Credit Agreement to extend the waiver of the leverage covenant through the fiscal quarter endingSeptember 30, 2021 . The amendment also (i) modifies the leverage covenant calculation beginning with the calculation for the trailing twelve-month period endedDecember 31, 2021 , ii) for purposes of testing the consolidated net senior secured leverage ratio for the fiscal quarters ending onDecember 31, 2021 ,March 31, 2022 andJune 30, 2022 , permits us to substitute Consolidated EBITDA for the first three fiscal quarters of 2019 in lieu of Consolidated EBITDA for the corresponding fiscal quarters of 2021, (iii) modifies the restrictions imposed by the covenant waiver 34 -------------------------------------------------------------------------------- and (iv) makes such other changes to permit the issuance of the 4.500% Convertible Senior Notes discussed below. Under the modified calculation, the consolidated net senior secured leverage ratio was 1.1 to 1 as ofDecember 31, 2021 . OnJune 15, 2021 , in conjunction with the issuance of the 5.25% Senior Notes discussed below, the Credit Agreement was amended to, among other things, extend the maturity of the revolving credit line fromNovember 28, 2022 toNovember 28, 2024 . We have four interest rate swap agreements that are used to hedge a portion of the interest rate risk associated with the variable interest rates on the term loan outstanding under the Credit Agreement. See Note 13 to our consolidated financial statements for discussion of the interest rate swaps. AtDecember 31, 2021 , there was$633.1 million outstanding under the term loan and no borrowings were outstanding under the$100.0 million revolving line of credit. The average interest rate on outstanding term loan borrowings under the Credit Agreement atDecember 31, 2021 was approximately 3.4% per annum, after giving effect to the interest rate swap agreements.
5.875% Senior Notes
OnMarch 16, 2021 ,Cinemark USA, Inc. issued$405 million aggregate principal amount of 5.875% senior notes due 2026, at par value (the "5.875% Senior Notes"). Proceeds, after payment of fees, were used to fund a cash tender offer to purchase any and all ofCinemark USA's 5.125% Senior Notes (the "5.125% Senior Notes") and to redeem any of the 5.125% Notes that remained outstanding after the tender offer. See further discussion of the tender offer below. Interest on the 5.875% Senior Notes is payable onMarch 15 andSeptember 15 of each year, beginningSeptember 15, 2021 . The 5.875% Senior Notes mature onMarch 15, 2026 . The Company incurred debt issuance costs of approximately$6.0 million in connection with the issuance, which are recorded as a reduction of long-term debt on the consolidated balance sheets. The 5.875% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain ofCinemark USA, Inc.'s subsidiaries that guarantee, assume or become liable with respect to any ofCinemark USA, Inc.'s or a guarantor's debt. The 5.875% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all ofCinemark USA, Inc.'s and its guarantor's existing and future senior debt and senior in right of payment to all ofCinemark USA, Inc.'s and its guarantors' existing and future senior subordinated debt. The 5.875% Senior Notes and the guarantees are effectively subordinated to all ofCinemark USA, Inc.'s and its guarantor's existing and future secured debt to the extent of the value of the collateral securing such debt, including all borrowings underCinemark USA, Inc.'s amended senior secured credit facility. The 5.875% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities ofCinemark USA, Inc.'s subsidiaries that do not guarantee the 5.875% Senior Notes. Prior toMarch 15, 2023 ,Cinemark USA, Inc. may redeem all or any part of the 5.875% Senior Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the 5.875% Senior Notes to the date of redemption. AfterMarch 15, 2023 ,Cinemark USA, Inc. may redeem the 5.875% Senior Notes in whole or in part at redemption prices specified in the indenture. In addition, prior toMarch 15, 2023 ,Cinemark USA, Inc. may redeem up to 40% of the aggregate principal amount of the 5.875% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture. 5.250% Senior Notes OnJune 15, 2021 ,Cinemark USA, Inc. issued$765 million aggregate principal amount of 5.25% senior notes due 2028, at par value (the "5.25% Senior Notes"). Proceeds, after payment of fees, were used to redeem all ofCinemark USA's 4.875%$755 million aggregate principal amount of Senior Notes due 2023 (the "4.875% Senior Notes"). Interest on the 5.25% Senior Notes is payable onJanuary 15 andJuly 15 of each year, beginningJanuary 15, 2022 . The 5.25% Senior Notes mature onJuly 15, 2028 . The 5.25% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain ofCinemark USA, Inc.'s subsidiaries that guarantee, assume or become liable with respect to any ofCinemark USA, Inc.'s or a guarantor's debt. The 5.25% Senior Notes and the guarantees will beCinemark USA's and the guarantors' senior unsecured obligations and (i) rank equally in right of payment toCinemark USA's and the guarantors' existing and future senior debt, including borrowings underCinemark USA's Credit Agreement (as defined below) andCinemark USA's existing senior notes, (ii) rank senior in right of payment toCinemark USA's 35 -------------------------------------------------------------------------------- and the guarantors' future subordinated debt, (iii) are effectively subordinated to all ofCinemark USA's and the guarantors' existing and future secured debt, including all obligations under theCredit Agreement andCinemark USA's 8.750% senior secured notes due 2025, in each case to the extent of the value of the collateral securing such debt, (iv) are structurally subordinated to all existing and future debt and other liabilities ofCinemark USA's non-guarantor subsidiaries, and (v) are structurally senior to the 4.500% convertible senior notes due 2025 issued byCinemark Holdings . Prior toJuly 15, 2024 ,Cinemark USA, Inc. may redeem all or any part of the 5.25% Senior Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the 5.25% Senior Notes to the date of redemption. On or afterJuly 15, 2024 ,Cinemark USA, Inc. may redeem the 5.25% Senior Notes in whole or in part at redemption prices specified in the indenture. In addition, prior toJuly 15, 2024 ,Cinemark USA, Inc. may redeem up to 40% of the aggregate principal amount of the 5.25% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture, so long as at least 60% of the principal amount of the 5.25% Senior Notes remains outstanding immediately after each such redemption.
8.750% Secured Notes
OnApril 20, 2020 ,Cinemark USA, Inc. issued$250.0 million aggregate principal amount of 8.750% senior secured notes due 2025, or the 8.750% Secured Notes. The 8.750% Secured Notes will mature onMay 1, 2025 . Interest on the 8.750% Secured Notes is payable onMay 1 andNovember 1 of each year. The indenture governing the 8.750% Secured Notes contains covenants that limit, among other things, the ability ofCinemark USA, Inc. and certain of its subsidiaries to (1) make investments or other restricted payments, including paying dividends, making other distributions or repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or consolidate with, or sell all or substantially all of its assets to, another person and (6) create liens. Upon a change of control, as defined in the indenture governing the 8.750% Secured Notes,Cinemark USA, Inc. would be required to make an offer to repurchase the 8.750% Secured Notes at a price equal to 101% of the aggregate principal amount outstanding plus accrued and unpaid interest, if any, through the date of repurchase. The indenture governing the 8.750% Secured Notes allowsCinemark USA, Inc. to incur additional indebtedness if it satisfies a coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The 8.750% Secured Notes are fully and unconditionally guaranteed on a joint and several senior basis by certain ofCinemark USA, Inc.'s subsidiaries that guarantee, assume or in any other manner become liable with respect to any ofCinemark USA, Inc.'s or its guarantors' other debt. IfCinemark USA, Inc. cannot make payments on the 8.750% Secured Notes when they are due,Cinemark USA, Inc.'s guarantors must make them instead. Under certain circumstances, the guarantees may be released without action by, or the consent of, the holders of the 8.750% Secured Notes. Prior toMay 1, 2022 ,Cinemark USA, Inc. may redeem all or any part of the 8.750% Secured Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the 8.750% Secured Notes to the date of redemption. On or afterMay 1, 2022 ,Cinemark USA, Inc. may redeem the 8.750% Secured Notes in whole or in part at redemption prices specified in the indenture. In addition, prior toMay 1, 2022 ,Cinemark USA, Inc. may redeem up to 40% of the aggregate principal amount of the 8.750% Secured Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture, so long as at least 60% of the principal amount of the 8.750% Secured Notes remains outstanding immediately after each such redemption.
4.500% Convertible Senior Notes
OnAugust 21, 2020 ,Cinemark Holdings, Inc. issued$460.0 million 4.500% convertible senior notes, or the 4.500% Convertible Senior Notes. The 4.500% Convertible Senior Notes will mature onAugust 15, 2025 , unless earlier repurchased or converted. Interest on the notes is payable onFebruary 15 andAugust 15 of each year, beginning onFebruary 15, 2021 . Holders of the 4.500% Convertible Senior Notes may convert their 4.500% Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately precedingMay 15, 2025 only under the following circumstances: (1) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per$1,000 principal amount of notes for each trading day of the 36 -------------------------------------------------------------------------------- measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (2) if we distribute to all or substantially all stockholders (i) rights options or warrants entitling them to purchase shares at a discount to the recent average trading price of our common stock (including due to a stockholder rights plan) or (ii) our assets or securities or rights, options or warrants to purchase the same with a per share value exceeding 10% of the trading price of our common stock, (3) upon the occurrence of specified corporate events as described further in the indenture. BeginningMay 15, 2025 , holders may convert their 4.500% Convertible Senior Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, or (4) during any calendar quarter commencing after the calendar quarter ending onSeptember 30, 2020 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price (initially$14.35 per share), on each applicable trading day. Upon conversion of the 4.500% Convertible Senior Notes, we will pay or deliver cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate is 69.6767 shares of our common stock perone thousand dollars principal amount of the 4.500% Convertible Senior Notes. The conversion rate will be subject to adjustment upon the occurrence of certain events. If a make-whole fundamental change as defined in the indenture occurs prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 4.500% Convertible Senior Notes in connection with such make-whole fundamental change. The 4.500% Convertible Notes are effectively subordinated to any of our, or our subsidiaries', existing and future secured debt to the extent of the value of the assets securing such indebtedness, including obligations under the Credit Agreement. The 4.500% Convertible Notes are structurally subordinated to all existing and future debt and other liabilities of our subsidiaries, including trade payables and includingCinemark USA's 5.125% Senior Notes, 4.875% Senior Notes and the 8.750% Secured Notes, or, collectively,Cinemark USA's senior notes (but excluding all obligations under the Credit Agreement which are guaranteed byCinemark Holdings, Inc. ). The 4.500% Convertible Notes rank equally in right of payment with all of our existing and future unsubordinated debt, including all obligations under the Credit Agreement, which such Credit Agreement is guaranteed byCinemark Holdings, Inc. , and senior in right of payment to any future debt that is expressly subordinated in right of payment to the 4.500% Convertible Senior Notes. The 4.500% Convertible Notes are not guaranteed by any ofCinemark Holdings, Inc.'s subsidiaries. During the year endedDecember 31, 2020 , in accordance with accounting guidance on debt and equity financing, we bifurcated the gross proceeds from the issuance of 4.500% Convertible Senior Notes and recorded a portion as long-term debt and a portion in equity. The long-term debt value was based on the fair value of the debt, determined as the present value of principal and interest payments assuming a market interest rate for similar debt that excluded a conversion feature. The difference between the face value of the 4.500% Convertible Senior Notes and the fair value was referred to as the debt discount and represented the amount allocated to equity. The debt discount was being amortized to interest expense at an effective interest rate of 10.0% over the contractual term of the notes. We adopted ASU 2020-06 under the modified retrospective method effectiveJanuary 1, 2021 (see further discussion in Note 13 to the consolidated financial statements). As a result of the adoption, the entire$460.0 million principal balance of the 4.500% Convertible Senior Notes were recorded in long-term debt and no longer bifurcated between long-term debt and equity. The impact of the adoption was as follows: • Reclassified$101.1 million previously allocated to the cash conversion feature (also referred to as a debt discount) and recorded in equity net of tax, from equity to long term debt on the consolidated balance sheets.
•
Reversed the accretion of interest of$5.7 million on the 4.500% Convertible Senior Notes recorded during the year endedDecember 31, 2020 with a credit to retained earnings.
•
Reclassified
•
Recorded offsetting amortization of debt issuance costs of
37
--------------------------------------------------------------------------------
Concurrently with the issuance of the 4.500% Convertible Senior Notes, we
entered into privately negotiated convertible note hedge transactions, or the
Hedge Transactions, with one or more of the initial purchasers of the 4.500%
Convertible Senior Notes or their respective affiliates, or the Option
Counterparties. The Hedge Transactions cover the number of shares of our common
stock that will initially underlie the aggregate amount of the 4.500%
Convertible Senior Notes, subject to anti-dilution adjustments substantially
similar to those applicable to the 4.500% Convertible Senior Notes. The Hedge
Transactions are generally expected to reduce potential dilution to our common
stock upon any conversion of the 4.500% Convertible Senior Notes and/or offset
any cash payments we may be required to make in excess of the principal amount
of converted 4.500% Convertible Senior Notes, as the case may be. Concurrently
with entering into the Hedge Transactions, we also entered into separate
privately negotiated warrant transactions with Option Counterparties, or the
Warrant Transactions, whereby we sold to Option Counterparties warrants to
purchase (subject to the net share settlement provisions set forth therein) up
to the same number of shares of our common stock, subject to customary
anti-dilution adjustments, or the Warrants. The Warrants could separately have a
dilutive effect to the extent that the market value per share of our common
stock exceeds the strike price of the warrants on the applicable expiration
dates unless, subject to the terms of the Warrants, we elect to cash settle the
Warrants. The exercise price of the Warrants is initially $22.08 and is subject
to certain adjustments under the terms of the warrants. The Company received
$89.4 million in cash proceeds from the sale of Warrants, which were used along
with proceeds from the 4.500% Convertible Senior Notes, to pay approximately
$142.1 million to enter into the Hedge Transactions.
Together, the Hedge Transactions and the Warrants are intended to reduce the
potential dilution from the conversion of the 4.500% Convertible Senior Notes.
The Hedge Transactions and Warrants are recorded in equity and are not accounted
for as derivatives, in accordance with applicable accounting guidance.
4.875% Senior Notes
OnMay 21, 2021 ,Cinemark USA, Inc. issued a conditional notice of optional redemption to redeem the$755 million outstanding principal amount of the 4.875% Senior Notes. In connection therewith,Cinemark USA deposited withWells Fargo Bank, N.A. , as Trustee for the 4.875% Senior Notes (the "Trustee"), funds sufficient to redeem all 4.875% Senior Notes remaining outstanding onJune 21, 2021 (the "Redemption Date"). The redemption payment (the "Redemption Payment") included$755 million of outstanding principal at the redemption price equal to 100.000% of the principal amount plus accrued and unpaid interest thereon to the Redemption Date. Upon deposit of the Redemption Payment with the Trustee onJune 15, 2021 , the indenture governing the 4.875% Senior Notes was fully satisfied and discharged. 38 --------------------------------------------------------------------------------
5.125% Senior Notes
OnMarch 16, 2021 ,Cinemark USA, Inc. completed a tender offer to purchase it's previously outstanding 5.125% Senior Notes, of which$334 million was tendered at the expiration of the offer. OnMarch 16, 2021 ,Cinemark USA, Inc. also issued a notice of optional redemption to redeem the remaining$66 million principal amount of the 5.125% Senior Notes. In connection therewith, onMarch 16, 2021 ,Cinemark USA deposited withWells Fargo Bank, N.A. , as trustee for the 5.125% Senior Notes (the "Trustee"), funds sufficient to redeem all 5.125% Notes remaining outstanding onApril 15, 2021 (the "Redemption Date"). The redemption payment (the "Redemption Payment") included approximately$66 million of outstanding principal at the redemption price equal to 100% of the principal amount plus accrued and unpaid interest thereon to the Redemption Date. Upon deposit of the Redemption Payment with the Trustee onMarch 16, 2021 , the indenture governing the 5.125% Senior Notes was fully satisfied and discharged.
Additional Borrowings of International Subsidiaries
During the years endedDecember 31, 2020 and 2021, certain of our international subsidiaries borrowed an aggregate of$35.8 million under various local bank loans. Below is a summary of loans outstanding as ofDecember 31, 2021 : Loan Balances Interest (USD millions) Rates as of December 31, Loan Description(s) December 31, 2021 2021 Covenants Maturity Negative and June 2023 and Colombia loans $ 2.7 4.9% to 5.2% maintenance September 2025 covenants Peru loans $ 4.9 1.0% to 4.8% Negative June and covenants December 2023 November 2022, Brazil loans $ 18.4 4.0% to 8.7% Negative October 2023 covenants and January 2029 Negative and Chile loans $ 4.2 3.5% maintenance November 2023 covenants Total $ 30.2
During the year ended
Additionally, we deposited cash into a collateral account to support the issuance of letters of credit to the lenders for certain of the international loans noted above. The total amount deposited as ofDecember 31, 2021 was$25.8 million and is considered restricted cash.
Covenant Compliance
The indentures governing the 5.875% Senior Notes, the 5.25% Senior Notes and the
8.750% Secured Notes ("the indentures") contain 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, 2021 , Cinemark USA, Inc. could
have distributed up to approximately $3.0 billion to its parent company and sole
stockholder, Cinemark Holdings, Inc. , under the terms of the indentures, subject
to its available cash and other borrowing restrictions outlined in the
indentures. Upon a change of control, as defined in the indentures, Cinemark
USA, Inc. would be required to make an offer to repurchase the 5.875% Senior
Notes, the 5.25% Senior Notes and the 8.750% Secured Notes at a price equal to
101% of the aggregate principal amount outstanding plus accrued and unpaid
interest, if any, through the date of repurchase. The indentures allow Cinemark
USA, Inc. to incur additional indebtedness if we satisfy 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, 2021
was 0.6 to 1.
See also discussion of dividend restrictions and the consolidated net senior secured leverage ratio under the Credit Agreement at Senior Secured Credit Facility above.
39
--------------------------------------------------------------------------------
As of
Ratings
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'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.
New Accounting Pronouncements
See Note 2 to our consolidated financial statements for a discussion of recently issued accounting pronouncements and their impact on our financial statements.
Seasonality
Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. The most successful motion pictures have historically been released during summer months in theU.S. , extending from May to July, and during the holiday season, extending from 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, whileHollywood content has similar release dates as in theU.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, quantity 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. 40
--------------------------------------------------------------------------------
© Edgar Online, source
