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Information on Cinemark USA, Inc.'s ability to distribute dividends to its parent company, Cinemark Holdings, Inc., as of December 31, 2020. The document also lists the subsidiaries of Cinemark Holdings, Inc. across various countries.
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Washington, D.C. 20549
(Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ Commission File Number 001-
(Exact Name of Registrant as Specified in its Charter) Delaware 20- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3900 Dallas Parkway Plano, TX (Address of principal executive offices) 75093 (Zip Code) Registrant’s telephone number, including area code: ( 972 ) 665- Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol Name of each exchange on which registered Common Stock, par value $0.001 per share CNK New York Stock Exchange 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 ☐ 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 ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ The aggregate market value of the voting and non-voting common equity owned by non-affiliates of the registrant on June 30, 2020, computed by reference to the closing price for the registrant’s common stock on the New York Stock Exchange on such date was approximately $1.23 billion (106,745,094 shares at a closing price per share of $11.55). As of February 15, 2021, 118,583,610 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant’s definitive proxy statement, in connection with its 2021 annual meeting of stockholders, to be filed within 120 days of December 31, 2020, are incorporated by reference into Part III, Items 10-14, of this annual report on Form 10-K.
Item 1. Business Cinemark Holdings, Inc. and subsidiaries 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 Paraguay. We are a leader and one of the most geographically diverse operators in the motion picture exhibition industry. As of December 31, 2020, we operated 531 theatres and 5,958 screens in the U.S. and Latin America. Our U.S. circuit had 331 theatres and 4,507 screens in 42 states and our international circuit had 200 theatres and 1,451 screens in 15 countries. Our significant and diverse presence in the U.S. and Latin America has made us an important distribution channel for movie studios and other content providers. We believe our portfolio of modern, high-quality theatres with multiple platforms provides a preferred destination for moviegoers and has contributed to our historically consistent financial performance. As of December 31, 2020, 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 outbreak of the COVID-19 pandemic has had an unprecedented impact on the world and our industry. As a movie exhibitor that operates spaces where patrons gather in close proximity, we have been, and continue to be, significantly impacted by the COVID-19 pandemic. At the initial outbreak of the COVID-19 pandemic, to comply with government mandates, we temporarily closed all of our theatres in the U.S. and Latin America effective March 17, 2020 and March 18, 2020, respectively. In conjunction with the temporary closure of our theatres in March 2020, we implemented temporary personnel and salary reductions, limited non-essential operating and capital expenditures, and negotiated modified timing and/or abatement of contractual payments with landlords and other major suppliers until our theatres reopened. In addition, we suspended our quarterly dividend. As of December 31, 2020, we had reopened 217 of our domestic theatres and 129 of our international theatres, showing a limited volume of new releases along with library content during reduced operating hours with limited capacities. Some of the health and safety protocols that we have implemented in our theatres for the safety of our employees, guests and surrounding communities include:
Our focus on maintaining a strong balance sheet and low leverage allowed us to enter the global COVID-19 pandemic in a solid financial position. Based on our current estimates of recovery, we believe we have and will generate sufficient cash to sustain operations. Nonetheless, the COVID-19 pandemic has had, and continues to have, adverse effects on our business, results of operations, cash flows, financial condition, access to credit markets and ability to service existing and future indebtedness, some of which are significant. Motion Picture Exhibition Industry Overview Domestic North American industry results for 2020 are not yet available, and as a result of the COVID-19 pandemic and resulting temporary theatre closures, are expected to be significantly lower than prior years. Preliminary estimates indicate that box office revenues were approximately $2.2 billion for 2020, down approximately 81% as compared to
The following table represents the results of a survey by Motion Picture Association of America, or MPAA, published during March 2020, outlining the historical trends in U.S. box office performance for the five-year period from 2015 through 2019. U.S. Box Office Revenues Attendance Average Ticket Year ($ in billions) (in billions) Price 2015 $ 11.1 1.32 $ 8. 2016 $ 11.4 1.32 $ 8. 2017 $ 11.1 1.24 $ 8. 2018 $ 11.9 1.30 $ 9. 2019 $ 11.4 1.24 $ 9. While the industry experienced drastically reduced results during 2020 as a direct result of the COVID-19 pandemic, industry statistics show slight increases and decreases in attendance over the past five years. Historically, domestic box office revenues remained relatively stable during this period. Even during recessionary periods, industry results demonstrated stability and a continued ability to attract consumers. Box office performance has been primarily dependent on the quality, quantity and timing of film product. Average ticket prices can also be driven by the mix of film product and availability of films in premium formats. Films released during the year ended December 31, 2020 included Bad Boys for Life, Sonic the Hedgehog, Birds of Prey, Dolittle, The Invisible Man and The Call of the Wild. The carryover of late 2019 releases such as 1917, Jumanji: The Next Level and Star Wars: The Rise of Skywalker also contributed to industry box office during early
these goals. While our long-term strategies remain consistent, for the near term we have shifted our focus to cash preservation and liquidity, closely managing costs and restructuring our operations and teams to be more efficient, and keeping our guests and employees safe and healthy. We expect this focus to continue until we fully recover from the impact of the COVID-19 pandemic. Upon recovery from the impacts of the COVID-19 pandemic and the resurgence of the industry, our long-term strategies will again become front and center. These include: Provide an Extraordinary Guest Experience. We differentiate our theatres by focusing on various initiatives that continuously enhance the in-theatre guest experience. We have a market-adaptive approach with our theatre amenities, including Luxury Lounger recliner seats, our exhibitor-branded premium large format, XD, and expanded food and beverage offerings. Our investment in these preferred amenities allows us to create and maintain a high-quality theatrical experience throughout our circuit. We believe our ongoing focus on providing an extraordinary in-theatre guest experience is a primary factor of our consistent industry-leading results. While our capital investments may be reduced temporarily, we will continue to ensure that our locations are well maintained. Enhance Overall Guest Engagement. We offer loyalty and subscription programs that help provide a personalized experience, continued investment in our website and mobile app features and tailored custom interactions. We pursue a wide range of strategic marketing initiatives to communicate and build consumer awareness, better understand the unique preferences of our guests and enrich their movie-going experience. Pursue Organic and Synergistic Growth Opportunities and Maintain Core Circuit. We have consistently reinvested our cash flows from operations in our circuit with a focus on new and exciting ways to attract guests. Our commitment to investing in our theatre assets is demonstrated by our level of capital expenditures for the years ended December 31, 2017, 2018 and 2019 of approximately $380.9 million, $346.1 million, and $303.6 million, respectively. In addition to our Luxury Lounger recliner seats and premium large format XD auditoriums, we have incorporated other market-adaptive concepts such as full bars and dine-in options. 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, 2019, we built eleven new theatres with 97 screens and acquired two theatres with 30 screens. During the year ended December 31, 2019, we also grew organically and built eleven new theatres with 97 screens and acquired two theatres with 30 screens. As a result of a significant reduction in our operating cash flows for 2020, we halted nonessential capital expenditures and reduced our capital expenditures to $83.9 million for the year. We built four theatres with 44 screens during 2020, as these projects were underway at the start of the COVID-19 pandemic. For the short term, we will continue to focus our capital investments on essential projects and maintaining the high quality of our assets, while we refortify our balance sheet. Competitive Strengths We believe the following strengths have allowed us to compete effectively in the past and continue to help us navigate through the impacts of the COVID-19 pandemic: Disciplined Operating Philosophy. Our balanced and disciplined investment approach centers on building new theatres, thoughtfully reinvesting in our existing theatres and acquiring theatres that will complement our circuit and offer a meaningful return. Our operating philosophy focuses on creating an extraordinary guest experience, maintaining favorable theatre-level economics, controlling operating costs and effectively reacting to economic and market changes. We have long believed in the combination of a strong balance sheet and ensuring our capital investments earn a solid return. This philosophy has proved to be successful for us, and helped us enter the COVID-19 pandemic in a strong financial position. We will continue to be disciplined with our cash management and liquidity strategies as we recover from the impacts of the COVID-19 pandemic, ensuring we effectively service our debt and other obligations. Leading Position in Our U.S. Markets. Based on our performance in recent years, we have a leading market share in most of the U.S. markets we serve, which includes a presence in 42 states. For the year ended December 31, 2019, 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. During 2020, we continued our leadership position as we were one of the first circuits to start to reopen our theatres and we have remained open as local regulations allow. As of December 31, 2020, we had 217 theatres reopened in the U.S. Located in Top Latin American Markets. We have successfully established a significant presence in major cities in Latin America, with theatres in 15 of the 20 largest metropolitan areas in South America. 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. While our performance during 2020 was impacted by the temporary closure of our theatres, we continue to reopen theatres in the region with 129 open as of December 31, 2020. State-of-the-Art Theatre Circuit. We offer a state-of-the-art movie-going experience, which we believe makes our theatres preferred destinations for moviegoers in our markets. During the year ended December 31, 2019, we built eleven new theatres with 97 screens. Our capital investments were very limited during 2020 due the COVID- pandemic, but we built four theatres with 44 new screens. As of December 31, 2020, we had commitments to open 195 new screens over the next three years. We have also started to convert our theatres to laser projectors, further enhancing the movie-going experiences. We expect the conversion to be completed over the next ten years. 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 2,815 domestic auditoriums, representing almost 63% of our domestic circuit. We offer our guests a premium large format experience through our 16 IMAX screens and our 278 XD auditoriums, which represents the largest exhibitor-branded 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 benefits of our XD auditoriums include program flexibility, as we can show the content of our choice, and there is no additional revenue share component outside of routine film rental. We offer enhanced food and beverages such as gourmet pizzas, burgers, and sandwiches, and a selection of beers, wines, and cocktails, all of which can be enjoyed in the comfort of the auditoriums, at approximately 60% 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 121 theatres throughout our worldwide circuit. 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-International Valmir Fernandes, and Executive Vice President and General Counsel Michael Cavalier, our global operational management team has extensive industry experience. Additionally, our country general managers are local citizens familiar with cultural, political and economic factors impacting their country, which enables them to more effectively manage the local business. Our global management team has successfully navigated us through many industry and economic cycles over the years and their leadership in steering the Company during the COVID-19 pandemic is a testament to their abilities and effectiveness as stewards of the Company.
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 circuits in the region. We have balanced our risk through a diversified international portfolio, which includes theatres in 15 of the 20 largest metropolitan areas in South America. We have established significant presence in Brazil and Argentina, where we are the largest exhibitor. We also have significant market presence in Colombia, Peru and Chile. The following table summarizes the geographic locations of our international theatre circuit as of December 31, 2020. Country Total Theatres Total Screens Brazil 86 633 Colombia 31 181 Argentina 22 191 Chile 20 141 Central America(1)^18 Peru 12 98 Ecuador 8 51 Bolivia 1 13 Paraguay 1 10 Curacao 1 6 Total 200 1, (1) Includes Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala. Content We offer a variety of content at our theatres. During the COVID-19 pandemic, as we were reopening theatres, we offered primarily library content to our guests, and we added new releases as they became available. We also offered our guests the ability to select a film for private viewing with our Private Watch Parties in a group of up to 20 family members and friends. In normal operating times, we monitor upcoming films and other content and work diligently with film distributors to license 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 many locations, we offer either our exhibitor-branded premium large format, XD, or IMAX. We also offer a format that features motion seats and added sensory features. We regularly play art and independent films, under our CineArts banner, at many of our U.S. theatres and offer local film product in our international markets, providing a variety of film choices to our guests. We have also historically offered 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 from a variety of genres during non-peak times. We also offer multi-cultural foreign language films and e-sports gaming events in our theatres. Our joint venture, AC JV, LLC, with Regal Entertainment Group, or Regal, and AMC Entertainment, Inc., or AMC, provides marketing and distribution of live and pre- recorded entertainment programming to movie theatres to augment theatres’ feature film schedules, which includes the Metropolitan Opera, sports programs, concert 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 alternative content to consumers beyond movies. Film Licensing In the domestic marketplace, our corporate film department negotiates with film distributors to license films for each of our domestic theatres. In each of our international offices, our local film personnel negotiate with local offices of major film distributors, local film distributors and independent content providers 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 both our domestic and international locations, we pay film rental fees based on a film’s box office receipts at our theatres. Film rental rates are negotiated based on either 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, historically representing approximately 35% of total revenues. We have devoted considerable management effort to expanding concession sales by enhancing our offerings and adapting to our customers’ changing preferences, as discussed below. Product Mix. Common concession products offered at all of our theatres may include various sizes and types of popcorn, soft drinks, coffees, non-carbonated drinks, candy and quickly-prepared or pre-prepared food, such as hot dogs, pizza, pretzel bites, nachos and ice cream. The food and beverage offerings vary based on consumer preferences in a particular market. We have introduced some healthier snack and beverage options for our guests, which are available at some locations, added alcohol offerings in a growing number of theatres, partnered with Pizza Hut to offer freshly-made Pizza Hut pizzas in select theatres, and also offer diverse ethnic foods based on market demographics. In select locations, we have expanded concession product offerings to include a broader variety of food and drink options, such as gourmet pizzas, burgers, and sandwiches and a selection of beers, wines, and cocktails, all of which can be enjoyed in the comfort of the auditoriums. Our proprietary point-of-sale system allows our category managers to monitor product sales and readily make adjustments to product mix on a theatre-by-theatre or market-by-market basis, when necessary. This program flexibility also allows us to efficiently activate and manage both national or regional product launches and promotional initiatives to further grow food and beverage sales. Pricing. New products and promotions are introduced on a regular basis to increase concession purchase incidence by existing consumers as well as to attract new consumers. In certain international countries and in all of our domestic theatres, we offer a free loyalty program that routinely offers food and beverage discounts. Our paid Movie Club membership program also allows our domestic guests to sign-up for exclusive concessions discounts. During 2020, when we started reopening our U.S. theatres as government restrictions lifted, we limited our concession product offerings and implemented “Welcome Back” pricing discounts on core concessions (fountain soda, popcorn and candy) as well as select alcohol, hot dog and nacho products. Staff Training. Employees are continually trained in proper sales techniques, food preparation and handling and maintaining concession product quality. Some of our product promotions include a motivational element that rewards theatre staff for exceptional sales of certain promotional items. During 2020, we implemented enhanced food safety and cleanliness protocols to align with the Center for Disease Control’s, or CDC, COVID-19-specific recommendations relative to concession and restaurant areas. Theatre Design. Our theatres are designed to optimize the guest purchase experience at the concession stands, which includes multiple concession counters throughout a theatre to facilitate serving guests 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 impulse purchases 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, and superior visibility of concession items. We also have lobby bars and VIP lounges in many domestic and international theatres.
In recognition that there was a segment of the audience who would prefer to visit our theatres and stay within their trusted group, we introduced Private Watch Parties. Our Private Watch Party program allows guests to rent an entire auditorium to watch a film that they choose from our current library and bring up to 20 guests for a price range of $99-$149. We automatically paused Movie Club subscriptions upon the initial closure of our theatres, alleviating the impact of recurring monthly payments on members while allowing them to maintain their benefits. Additionally, we extended the expiration date of all loyalty points into 2021. In traditional times, we generally market our theatres and special events, including new theatre grand openings, remodel openings and VIP events, using email, organic and paid digital advertising, and radio and television advertising spots. We exhibit previews of coming attractions and current films as part of our on-screen pre-feature program. We offer guests access to movie times, the ability to buy their tickets and reserve their seats in advance and purchase gift cards at our website www.cinemark.com and via our smart phone and tablet applications. Customers can subscribe to our emails and push notifications to receive information about current and upcoming films at their preferred Cinemark theatre(s), including details about upcoming XD movies, advanced ticket sales, screenings, special events, concerts, live broadcasts, contests, promotions, and our latest concessions and merchandise offerings. We partner with film distributors on a regular basis to promote upcoming films through local, regional and national programs that are exclusive to our theatres. We interact with guests every day on social media platforms, such as Instagram, Facebook, and Twitter. 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 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 named Movie Club. Movie Club offers guests a standard ticket credit, member-pricing for a companion ticket and concession and other transaction discounts for a monthly fixed price. Movie Club is a unique option to reward our loyal guests and allows us to stay informed of our frequent guests’ preferences. We offer a free domestic loyalty program to our guests, named Movie Fan. Movie Fan allows our guests to earn one point for every dollar they spend. Points can then be redeemed for tickets, concession items and discounts, as well as unique and limited-edition rewards that relate to films currently playing in our theatres. We also have loyalty programs in some of our international markets that either allow customers to pay a nominal fee for an annual membership card that provides them with certain admissions and concession discounts or that allows guests to earn loyalty points for each purchase. Similar to the Movie Fan 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 provide additional opportunities for us to partner with the studios and our vendors through targeted promotions. 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 guests, licensing films and developing new theatre sites. Our primary U.S. competitors include Regal and AMC and our primary international competitors, which vary by country, include Cinépolis, Cine Colombia, CinePlanet, Kinoplex (GSR), Village Cines, Hoyts Chile, SuperCines and Araujo. We are generally able to book films without regard to the film bookings of other exhibitors at many of our theatres. In certain 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 guests can depend on customer service quality, location, theatre capacity, quality of projection and sound equipment, film showtime availability 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 commercial terms, committed investment and resources, theatre design and capacity, revenue potential, and financial stability. We face competition from other forms of out-of-home entertainment competing for the public’s leisure time and disposable income, such as family entertainment centers, concerts, theme parks and sporting events. We also face competition for patrons from a number of alternative film distribution channels, such as streaming services, digital downloads, video on-demand, DVDs, pay television, network and syndicated television, and streaming video on demand. 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 the U.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, 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 impact this seasonality trend. The timing, quantity and quality of film releases can have a significant impact on our results of operations, and the results of one period are not necessarily indicative of results for the following period or for the same period in the following year. Corporate Operations Our worldwide headquarters, referred to as the Cinemark Service Centre, or CSC, is located in Plano, Texas. Personnel at the CSC provide oversight and support for our domestic and international theatres, and includes 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 and information technology. Our U.S. operations are comprised of twenty regions, each of which is headed by a regional vice president. We have nine regional offices in Latin America responsible for the local management of theatres in fifteen countries (Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala and Curacao are managed out of one Central American regional office). Each regional office is headed by a general manager or a member of our international management team with additional personnel responsible for film licensing, marketing, human resources, information technology, operations and finance. We have divisional chief financial officers in Brazil and Argentina and a regional chief financial officer located in Chile that oversees Chile, Bolivia and Paraguay. Human Capital Our business is seasonal and therefore, our headcount can vary throughout the year depending on the timing and success of movie releases. While we do not have unionized employees within our domestic employee base, some of our international locations are subject to union regulations. At the time we temporarily closed our theatres in March 2020 due to the COVID-19 pandemic, we had approximately 18,000 employees in the U.S and approximately 10,500 employees in our international markets. In response to the swift and significant impacts of the COVID-19 pandemic on our business, we undertook a number of operational measures, which included temporary and permanent reductions of personnel. Our focus upon the reopening of our theatres was to re-hire our hourly team members who were impacted upon closure of our theatres. We currently have approximately 8,300 employees in the U.S., approximately 30% of whom are full-time employees and 70% of whom are part-time employees. We have approximately 6,300 employees in our international markets, approximately 80% of whom are full-time employees and approximately 20% of whom are part-time employees. The COVID-19 pandemic continues to impact the lives of our employees and we have taken steps to help protect their health and safety and maintain business continuity. A vast majority of our CSC employees continue to work remotely, which we expect will continue over the near term. The health and safety of our employees, guests and communities is a top priority. As such, we established stringent, enhanced cleaning and safety protocols at our corporate offices and theatres, including mandatory face covering, physical distance requirements, enhanced
Item 1A. Risk Factors An investment in our common stock or debt securities involves risks and uncertainties and our actual results and future trends may differ materially from our past or projected future performance. We urge investors to consider carefully the risk factors described below in evaluating the information contained in this report. Risks Related to the COVID-19 Pandemic The COVID-19 pandemic has disrupted and is expected to continue to disrupt our industry and our business and could continue to materially affect our financial condition, liquidity, cash flows, results of operations and ability to service our existing and future indebtedness, for an extended period of time. The outbreak of the COVID-19 pandemic has disrupted, and we expect it will continue to disrupt, our industry and our business for an extended period of time. While we have reopened 217 of our domestic theatres and 129 of our international theatres as of December 31, 2020, our business, results of operations, liquidity, cash flows and financial condition continue to be severely impacted by the COVID-19 pandemic. One of the key factors that has materially affected our business is the availability of new films for exhibition at our theatres. Due to the COVID-19 pandemic, production of films has been temporarily halted or delayed and new film releases have been postponed, resulting in a drastic reduction in the volume of new films available for theatrical exhibition. Even when new films are available, studios have reduced the window for video and digital releases or have released directly to alternative film distribution channels such as streaming services and bypassed a theatrical release. In addition to the impact on film product availability for theatrical exhibition, governmental restrictions such as limitations on capacity and food and beverage sales continue to impact our results of operations, liquidity and cash flows. As the COVID-19 pandemic continues to develop, there could be additional federal, state or local responses that further restrict in-person gathering and/or movement of guests or otherwise impact our business. Even as restrictions are lifted, consumers may not be comfortable gathering in a large group or within a closed space for a few hours at a time. We cannot predict when the effects of the COVID-19 pandemic will subside, whether the response to contain or mitigate the COVID-19 pandemic through the development and availability of effective treatments and vaccines, including the vaccines recently approved by the FDA for emergency use in the U.S., will be successful or if business will return to normal levels of operation. The longer and more severe the pandemic, including repeat or cyclical outbreaks, the more severe the adverse effects will be on our business, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness. The outbreak of COVID-19 has also significantly increased economic and demand uncertainty. It is likely that the current outbreak or continued spread of COVID- will cause an economic slowdown, and it is possible that it could cause a global recession. For additional information on risks related to a slowdown or recession, see “—Other General Risks—General political, social, health and economic conditions can adversely affect our attendance.” To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, including but not limited to those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness. Risks Related to Our Business and Operations 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. Reduced 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 production and marketing efforts of the film distributors to make and promote their films could have an adverse effect on our business by resulting in fewer patrons and reduced revenues. During 2020, we saw a significant reduction in the quantity of films available to exhibit in our theatres. We expect the quantity of new film releases available for theatrical exhibition to continue to be lower than historical levels
during 2021, due to production delays, theatre closures, government restrictions and consumer sentiment, all directly correlating to the status of the COVID-19 pandemic. 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 five major film distributors accounting for approximately 80% of U.S. box office revenues and 40 of the top 50 grossing films during 2019. 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 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 mayadversely 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, 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 competing forms of entertainment or the use of alternative film distribution channels may reduce movie theatre attendance and limit revenue growth. We compete with other forms of out-of-home entertainment, such as family entertainment centers, concerts, theme parks, gaming and sporting events, for our patrons’ leisure time and disposable income. We also face competition for patrons from a number of alternative film distribution channels, such as digital downloads, video on-demand, DVDs, pay television, network and syndicated television, and streaming video on demand. Some of these distribution channels have seen growth in production in recent years. 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. Our results of operations may be impacted by the shrinking, or elimination of, video and digital releasewindows. The 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 for DVD, has been approximately 90 days and digital purchase for ownership (also known as electronic sell-through) has been approximately 74 days for the past several years. During the COVID-19 pandemic, certain studios have adopted strategies that reduced, or in some cases eliminated, the
Risks Related to Financing and Liquidity 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, 2020, we had $2,527.9 million in long-term debt obligations, $141.0 million in finance lease obligations and $1,346.7 million in long-term operating lease obligations. Our substantial lease and debt obligations pose risk by:
- requiring us to dedicate a substantial portion of our cash flows to payments on our lease and debt obligations, thereby reducing the availability of our cash flows from operations to fund working capital, capital expenditures, acquisitions and other corporate requirements and to pay dividends; - impeding our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and other purposes; - subjecting us to the risk of increased sensitivity to interest rate increases on our variable rate debt, including our borrowings under our senior secured credit facility; - limiting our ability to invest in innovations in technology and implement new platforms or concepts in our theatres; and - making us more vulnerable to adverse economic, market and industry conditions (including the impact of the COVID-19 pandemic), limit our flexibility in planning for, or reacting to, changes in our business operations or to our industry overall, and place us at a disadvantage in relation to our competitors that have lower debt levels. 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. Once we recover from the COVID-19 pandemic, we may not be able to generate cash flows at historical 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. A lowering or withdrawal of the ratings assigned or a change in outlook to our outstanding debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.
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 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 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. Our debt currently has a non-investment grade rating, and any rating assigned could be lowered (or outlook thereof could be changed) or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes in our business or industry, including as a result of the COVID-19 pandemic, so warrant. Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing. In particular, our access to the capital markets may be impacted, our other funding sources may decrease, the cost of debt may increase as a result of increased interest rates or fees, and we may be required to provide additional credit assurances, including collateral, under certain contracts or arrangements. Our inability to raise funds necessary to settle conversions of, or to repurchase, the 4.50% Convertible Senior Notes (as defined below), upon a fundamental change as described in the indenture governing the 4.50% Convertible Senior Notes, may lead to defaults under such indenture and under agreements governing our existing or future indebtedness. If we settle the 4.50% Convertible Senior Notes by cash, or by a combination of cash and shares of our common stock,upon a fundamental change as described in the indenture governing the 4.50% Convertible Senior Notes, we will be required to make cash payments with respect to the 4.50% Convertible Senior Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make purchases of the 4.50% Convertible Senior Notes being surrendered or converted. In addition, our ability to repurchase the 4.50% Convertible Senior Notes or to pay cash upon conversion of the 4.50% Convertible Senior Notes is limited by the agreements governing our existing indebtedness (including the senior secured credit facility) and may also be limited by law, by regulatory authority or by agreements that will govern our future indebtedness. Our failure to repurchase 4.50% Convertible Senior Notes at a time when the repurchase is required by the indenture governing the 4.50% Convertible Senior Notes or to pay cash payable on future conversions of the 4.50% Convertible Senior Notes as required by such indenture would constitute a default under such indenture. A default under the indenture governing the 4.50% Convertible Senior Notes or the fundamental change itself could also lead to a default under agreements governing our existing or future indebtedness (including the senior secured credit facility and the indentures governing Cinemark USA, Inc.’s senior notes). The conditional conversion feature of the 4.50% Convertible Senior Notes, if triggered, may adversely affect our financial condition and operating results. In the event the conditional conversion feature of the 4.50% Convertible Senior Notes is triggered, holders of the 4.50% Convertible Senior Notes will be entitled to convert the 4.50% Convertible Senior Notes at any time during specified periods at their option. If one or more holders elect to convert their4.50% Convertible Senior Notes, initially we elect to satisfy our conversion obligations by combination settlement. In addition, in the future, we may elect to settle all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their 4.50% Convertible Senior Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 4.50% Convertible Senior Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. Conversion of the 4.50% Convertible Senior Notes will dilute the ownership interest of existing stockholders, or may otherwise depress the price of our common stock. The conversion of some or all of the 4.50% Convertible Senior Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares of our common stock upon conversion of any of the 4.50%