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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission File Nos. 33-47040; 333-11895; 333-45417
CINEMARK USA, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2206284
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3900 Dallas Parkway
Suite 500
Plano, Texas 75093
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 665-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes ____ No X
As of May 15, 2003, 1,500 shares of Class A common stock and 182,648 shares
of Class B common stock were outstanding.
CINEMARK USA, INC. AND SUBSIDIARIES
Index
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of March 31, 2003 (unaudited)
and December 31, 2002 3
Condensed Consolidated Statements of Operations
(unaudited) for the three month periods
ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash
Flows (unaudited) for the three month
periods ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 23
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 34
Item 4. Controls and Procedures 35
PART II OTHER INFORMATION
Item 1. Legal Proceedings 36
Item 2. Changes in Securities and Use of Proceeds 36
Item 3. Defaults Upon Senior Securities 36
Item 4. Submission of Matters to a Vote of Security Holders 36
Item 5. Other Information 36
Item 6. Exhibits and Reports on Form 8-K 36
SIGNATURES 38
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
(Unaudited)
------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 42,648,574 $ 63,718,515
Inventories 3,689,432 3,688,915
Accounts receivable 11,376,916 12,441,849
Income tax receivable 1,948,064 715,931
Prepaid expenses and other 4,525,443 4,094,135
------------------------------------
Total current assets 64,188,429 84,659,345
THEATRE PROPERTIES AND EQUIPMENT 1,185,967,627 1,177,508,981
Less accumulated depreciation and amortization (401,673,402) (385,778,478)
------------------------------------
Theatre properties and equipment - net 784,294,225 791,730,503
OTHER ASSETS
Goodwill 10,755,311 10,751,844
Investments in and advances to affiliates 2,928,159 3,040,940
Deferred charges and other - net 36,759,548 26,631,296
------------------------------------
Total other assets 50,443,018 40,424,080
------------------------------------
TOTAL ASSETS $ 898,925,672 $ 916,813,928
====================================
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 6,002,004 $ 30,190,449
Accounts payable and accrued expenses 83,967,831 124,237,312
------------------------------------
Total current liabilities 89,969,835 154,427,761
LONG-TERM LIABILITIES
Senior credit agreements 167,945,407 282,237,221
Senior subordinated notes 530,152,040 380,159,167
Deferred lease expenses 25,216,959 24,837,457
Deferred gain on sale leasebacks 4,281,140 4,372,620
Deferred income taxes 14,990,145 11,170,128
Deferred revenues and other long-term liabilities 3,933,302 5,129,370
------------------------------------
Total long-term liabilities 746,518,993 707,905,963
MINORITY INTERESTS IN SUBSIDIARIES 28,098,667 26,714,929
SHAREHOLDER'S EQUITY
Class A common stock, $.01 par value: 10,000,000 shares
authorized, 1,500 shares issued and outstanding 15 15
Class B common stock, no par value: 1,000,000 shares
authorized, 239,893 shares issued and outstanding 49,543,427 49,543,427
Additional paid-in-capital 12,249,157 11,974,860
Retained earnings 85,726,249 80,273,323
Treasury stock, 57,245 Class B shares at cost (24,232,890) (24,232,890)
Accumulated other comprehensive loss (88,947,781) (89,793,460)
------------------------------------
Total shareholder's equity 34,338,177 27,765,275
------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 898,925,672 $ 916,813,928
====================================
The accompanying notes are an integral part of the consolidated financial statements.
3
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2003 2002
------------------------------------
REVENUES
Admissions $ 128,681,137 $ 146,411,564
Concession 64,373,240 69,286,218
Other 10,947,382 11,004,324
------------------------------------
Total revenues 204,001,759 226,702,106
COSTS AND EXPENSES
Cost of operations:
Film rentals and advertising 67,249,207 76,885,027
Concession supplies 9,913,574 11,981,820
Salaries and wages 22,609,749 22,550,434
Facility lease expense 28,814,130 29,149,610
Utilities and other 25,479,127 26,685,341
------------------------------------
Total cost of operations 154,065,787 167,252,232
General and administrative expenses 9,589,814 10,643,017
Depreciation and amortization 16,136,914 17,166,781
Asset impairment loss - 558,398
(Gain) loss on sale of assets and other (616,429) 539,192
------------------------------------
Total costs and expenses 179,176,086 196,159,620
------------------------------------
OPERATING INCOME 24,825,673 30,542,486
OTHER INCOME (EXPENSE)
Interest expense (13,295,608) (14,783,937)
Amortization of debt issue cost (583,620) (591,170)
Interest income 658,629 483,339
Foreign currency exchange gain (loss) 16,131 (220,997)
Loss on early retirement of debt (1,645,759) -
Equity in income of affiliates 196,356 116,741
Minority interests in income of subsidiaries (770,205) (876,471)
------------------------------------
Total other expenses (15,424,076) (15,872,495)
------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 9,401,597 14,669,991
Income taxes 3,948,671 4,439,269
------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF AN ACCOUNTING CHANGE 5,452,926 10,230,722
Cumulative effect of a change in accounting principle, net of income tax
benefit of $0. - (3,389,779)
------------------------------------
NET INCOME $ 5,452,926 $ 6,840,943
====================================
EARNINGS PER SHARE:
Basic:
Income before accounting change $ 29.61 $ 55.56
Cumulative effect of an accounting change - (18.41)
------------------------------------
Net income $ 29.61 $ 37.15
====================================
Diluted:
Income before accounting change $ 29.61 $ 54.56
Cumulative effect of an accounting change - (18.08)
------------------------------------
Net income $ 29.61 $ 36.48
====================================
The accompanying notes are an integral part of the consolidated financial statements.
4
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2003 2002
------------------------------------
OPERATING ACTIVITIES
Net income $ 5,452,926 $ 6,840,943
Noncash items in net income:
Depreciation 15,982,276 16,957,553
Amortization of other assets 154,638 209,228
Amortization of foreign advanced rents 423,607 497,963
Amortized compensation - stock options 274,297 277,280
Amortization of debt issue costs 583,620 591,170
Amortization of gain on sale leasebacks (91,480) (91,480)
Amortization of debt discount and premium (7,127) (7,127)
Amortization of deferred revenues (1,168,226) (1,168,226)
Loss on impairment of assets - 558,398
(Gain) loss on sale of assets and other (616,429) 539,192
Loss on early retirement of debt 1,645,759 -
Deferred lease expenses 379,502 454,202
Deferred income tax expenses 3,820,017 10,350,697
Equity in income of affiliates (196,356) (116,741)
Minority interests in income of subsidiaries 770,205 876,471
Cumulative effect of an accounting change - 3,389,779
Cash provided by (used for) operating working capital:
Inventories (517) (111,214)
Accounts receivable 1,064,933 163,330
Prepaid expenses and other (431,308) 21,849
Other assets (2,227,076) 3,990,846
Advances with affiliates 312,451 853,362
Accounts payable and accrued expenses (40,518,413) (25,437,179)
Other long-term liabilities (27,842) 221,589
Income tax receivable/payable (1,232,133) (6,452,183)
-------------------------------------
Net cash provided by (used for) operating activities (15,652,676) 13,409,702
INVESTING ACTIVITIES
Additions to theatre properties and equipment (8,603,274) (8,656,770)
Sale of theatre properties and equipment 1,490,574 1,504,441
Investment in affiliates (3,314) -
Dividends/capital returned from affiliates - 500,000
------------------------------------
Net cash used for investing activities (7,116,014) (6,652,329)
FINANCING ACTIVITIES
Issuance of senior subordinated notes 150,000,000 -
Increase in long-term debt 226,004,596 17,772,828
Decrease in long-term debt (364,361,185) (15,170,540)
Increase in debt issue cost (10,712,267) -
Increase in minority investment in subsidiaries 894,354 421,855
Decrease in minority investment in subsidiaries (280,821) (209,028)
------------------------------------
Net cash provided by financing activities 1,544,677 2,815,115
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 154,072 (334,209)
------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (21,069,941) 9,238,279
CASH AND CASH EQUIVALENTS:
Beginning of period 63,718,515 50,199,223
------------------------------------
End of period $ 42,648,574 $ 59,437,502
====================================
The accompanying notes are an integral part of the consolidated financial statements.
5
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company and Basis of Presentation
Cinemark USA, Inc. and its subsidiaries (the "Company") is one of the
leaders in the motion picture exhibition industry in terms of both revenues and
numbers of screens in operation, with theatres in the United States ("U.S."),
Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru, Honduras, El Salvador,
Nicaragua, Costa Rica, Panama, Colombia and the United Kingdom. The Company also
manages additional theatres in the U.S. and provides management services for one
theatre in Taiwan at March 31, 2003.
The condensed consolidated financial statements have been prepared by
the Company, without audit, according to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, these interim
financial statements reflect all adjustments (which, except for the cumulative
effect of an accounting change, include only normal recurring adjustments)
necessary to state fairly the financial position and results of operations as of
and for the periods indicated. The condensed consolidated financial statements
include the accounts of Cinemark USA, Inc. and its subsidiaries. Majority-owned
subsidiaries that the Company controls are consolidated while those subsidiaries
of which the Company owns between 20% and 50% and does not control are accounted
for as affiliates under the equity method. Those subsidiaries of which the
Company owns less than 20% are accounted for as affiliates under the cost
method. The results of these subsidiaries and affiliates are included in the
financial statements effective with their formation or from their dates of
acquisition. Significant intercompany balances and transactions are eliminated
in consolidation. Certain reclassifications have been made to the 2002 financial
statements to conform to the 2003 presentation.
These financial statements should be read in conjunction with the
audited annual financial statements and the notes thereto for the year ended
December 31, 2002, included in the Annual Report filed March 19, 2003 on Form
10-K by the Company under the Securities Exchange Act of 1934. Operating results
for the three month period ended March 31, 2003 are not necessarily indicative
of the results to be achieved for the full year.
2. Earnings Per Share
Earnings per share are computed using the weighted average number of
shares of Class A and Class B common stock outstanding during each period. The
following table sets forth the computation of basic and diluted earnings per
share.
Three Months Ended
March 31,
---------
2003 2002
---- ----
Income before cumulative effect of an accounting change $5,452,926 $10,230,722
============== ==============
Basic:
Weighted average common shares outstanding 184,148 184,148
============== ==============
Income before cumulative effect of an accounting change per common share $29.61 $55.56
============== ==============
Diluted:
Weighted average common shares outstanding 184,148 184,148
Common equivalent shares for stock options - 3,365
-------------- --------------
Weighted average common and common equivalent shares outstanding 184,148 187,513
============== ==============
Income before cumulative effect of an accounting change per common and common
equivalent share $29.61 $54.56
============== ==============
6
Basic income per share is computed by dividing income by the weighted
average number of shares of common stock of all classes outstanding during the
period. Diluted income per share is computed by dividing income by the weighted
average number of shares of common stock and potential issuable common stock
outstanding using the treasury stock method.
The dilutive effect of the options to purchase common stock is excluded
from the computation of diluted income per share if their effect is
antidilutive. At March 31, 2002, no options to purchase common stock have been
excluded from the diluted income per share calculation as a result of
antidilution.
On May 16, 2002, Cinemark, Inc. was formed as the Delaware holding
company of Cinemark USA, Inc. Under a share exchange agreement, dated May 17,
2002, and after giving effect to a reverse stock split, each outstanding share
and each outstanding option to purchase shares of the Company was exchanged for
shares and options to purchase shares, respectively, of common stock of
Cinemark, Inc. As a result, weighted average common shares outstanding for the
three month period ended March 31, 2003 do not include options to purchase
shares of Cinemark, Inc.'s common stock.
3. Comprehensive Income (Loss)
Statement of Financial Accounting Standards (SFAS) No. 130 establishes
standards for reporting and display of comprehensive income (loss) and its
components in the financial statements. The following components are reflected
in the Company's comprehensive income (loss):
Three Months Ended
March 31,
---------
2003 2002
---- ----
Net income $5,452,926 $ 6,840,943
Foreign currency translation adjustment 845,679 (9,930,514)
---------- ------------
Comprehensive income (loss) $6,298,605 $(3,089,571)
========== ============
4. Foreign Currency Translation
The accumulated other comprehensive loss account in shareholder's equity
of $88,947,781 and $89,793,460 at March 31, 2003 and December 31, 2002,
respectively, primarily relates to the cumulative foreign currency adjustments
from translating the financial statements of Cinemark Argentina, S.A., Cinemark
Brasil S.A. and Cinemark de Mexico, S.A. de C.V. into U.S. dollars.
In January 2002, the Argentine government ended the peso-dollar parity
regime and established a dual exchange rate system, with a "commercial rate" and
a "market rate". The market rate traded for the first time on January 11, 2002.
On January 14, 2002, the Argentine government unified the commercial rate and
the market rate into one floating rate which is presently in use. On March 31,
2003, the floating rate was 3.0 pesos to the U.S. dollar (the exchange rate was
3.4 pesos to the U.S. dollar at December 31, 2002). As a result, the effect of
translating the March 31, 2003 Argentine financial statements into U.S. dollars
resulted in a cumulative foreign currency translation adjustment to the
accumulated other comprehensive loss account as an increase to shareholder's
equity of approximately $2 million at March 31, 2003. At March 31, 2003, the
total assets of Cinemark Argentina, S.A. were approximately U.S. $16 million.
7
On March 31, 2003, the exchange rate for the Brazilian real was 3.4
reais to the U.S. dollar (the exchange rate was 3.5 reais to the U.S. dollar at
December 31, 2002). As a result, the effect of translating the March 31, 2003
Brazilian financial statements into U.S. dollars resulted in a cumulative
foreign currency translation adjustment to the accumulated other comprehensive
loss account as an increase to shareholder's equity of approximately $1 million
at March 31, 2003. At March 31, 2003, the total assets of Cinemark Brasil S.A.
were approximately U.S. $49 million.
On March 31, 2003, the exchange rate for the Mexican peso was 10.7 pesos
to the U.S. dollar (the exchange rate was 10.4 pesos to the U.S. dollar at
December 31, 2002). As a result, the effect of translating the March 31, 2003
Mexican financial statements into U.S. dollars resulted in a cumulative foreign
currency translation adjustment to the accumulated other comprehensive loss
account as a reduction of shareholder's equity of approximately $2 million at
March 31, 2003. At March 31, 2003, the total assets of Cinemark de Mexico, S.A.
de C.V. were approximately U.S. $81 million.
In 2002 and 2003, all foreign countries where the Company has
operations, including Argentina, Brazil and Mexico were deemed non-highly
inflationary. Thus, any fluctuation in the currency results in the Company
recording a cumulative foreign currency translation adjustment to the
accumulated other comprehensive loss account as an increase or reduction to
shareholder's equity.
5. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed
consolidated statements of cash flows:
Three Months Ended March 31,
2003 2002
---- ----
Cash paid for interest $21,162,524 $23,270,639
Cash paid for income taxes (net of refunds) 1,396,051 764,884
6. Financial Information About Geographic Areas
The Company operates in a single business segment as a motion picture
exhibitor. The Company is a multinational corporation with consolidated
operations in the U.S., Canada, Mexico, Argentina, Brazil, Chile, Ecuador, Peru,
Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Colombia and the United
Kingdom. Revenues in the United States and Canada, Mexico, Brazil and other
foreign countries for the three month periods ended March 31, 2003 and 2002 are
as follows:
Three Months Ended
March 31,
---------
Revenues 2003 2002
-------- ---- ----
U.S. and Canada $157,593,144 $169,061,159
Mexico 15,672,170 22,051,762
Brazil 15,074,834 19,328,049
Other foreign countries 16,152,194 16,547,126
Eliminations (490,583) (285,990)
------------- -------------
Total $204,001,759 $226,702,106
============= =============
8
Long-lived assets in the U.S. and Canada, Mexico, Brazil and other
foreign countries as of March 31, 2003 and December 31, 2002 are as follows:
March 31, December 31,
Long-Lived Assets 2003 2002
----------------- ---- ----
U.S. and Canada $625,825,056 $633,896,654
Mexico 67,644,964 67,990,885
Brazil 38,361,039 37,892,202
Other foreign countries 52,463,166 51,950,762
------------ ------------
Total $784,294,225 $791,730,503
============ ============
7. Goodwill and Other Intangible Assets
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142 Goodwill and Other Intangible Assets, effective January 1, 2002. In
accordance with SFAS No. 142, beginning on January 1, 2002, the Company's
goodwill and its other intangible assets, which have been deemed to have
indefinite lives, are no longer being amortized and are subject to annual
impairment tests. As of January 1, 2002 the Company performed the required
transitional impairment tests of goodwill and other intangible assets with
indefinite useful lives, and as a result, recorded impairment charges of
$3,325,611 and $64,168, respectively. These charges are reflected as a
cumulative effect of a change in accounting principle in the condensed
consolidated statement of operations for the three month period ended March 31,
2002.
The Company recorded an additional impairment of goodwill in the amount
of $558,398 in the three month period ended March 31, 2002 (recorded as a
component of asset impairment loss in the condensed consolidated statement of
operations). The additional impairment of goodwill related to a write-down of
goodwill to fair value associated with the Company's Argentina operations. As of
December 31, 2002, the Company performed the required annual impairment tests of
goodwill and other intangible assets with indefinite useful lives and no
additional impairment was present. Goodwill and other intangible assets can be
affected by foreign currency adjustments from translating foreign subsidiary
financial statements into U.S. dollars.
Goodwill and other intangible assets at March 31, 2003 and December 31,
2002 are as follows:
March 31, December 31,
2003 2002
---- ----
Amortized Other Intangible Assets:
Capitalized licensing fees $ 9,000,000 $ 9,000,000
Other intangible assets 511,432 72,403
Less - accumulated amortization (1,264,070) (1,139,070)
----------- ------------
Net other intangible assets $ 8,247,362 $ 7,933,333
============ ============
Unamortized Goodwill and Other Intangible Assets:
Goodwill $10,755,311 $10,751,844
Other intangible assets 23,663 16,163
------------ ------------
$10,778,974 $10,768,007
============ ============
Aggregate Amortization Expense:
For the three month period ended March 31, 2003 $154,638
========
For the three month period ended March 31, 2002 $209,228
========
9
Aggregate amortization expense for the three month period ended March
31, 2003 consists of $125,000 of amortization of other intangible assets and
$29,638 of amortization of other assets (both of which are included in deferred
charges and other on the condensed consolidated balance sheet).
Estimated Amortization Expense of Other Intangible Assets:
For the year ended December 31, 2003 $ 526,386
For the year ended December 31, 2004 526,386
For the year ended December 31, 2005 526,386
For the year ended December 31, 2006 526,386
For the year ended December 31, 2007 526,386
Thereafter 5,615,432
8. New Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement requires, among other things, that gains and losses
on the early extinguishment of debt be classified as extraordinary only if they
meet the criteria for extraordinary treatment set forth in Accounting Principles
Board Opinion No. 30. The provisions of this statement related to classification
of gains and losses on the early extinguishment of debt are effective for fiscal
years beginning after May 15, 2002. This statement became effective for the
Company on January 1, 2003. See note 12 for discussion of the debt retired
during the three month period ended March 31, 2003 in conjunction with the
Company's long-term debt refinancing.
In November 2002, the Financial Accounting Standards Board issued
Interpretation Number 45, "Guarantor's Accounting and Disclosure requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN
45"). This interpretation elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The disclosure
requirements of FIN 45 are effective for interim and annual periods after
December 15, 2002. The initial recognition and initial measurement requirements
of FIN 45 are effective prospectively for guarantees issued or modified after
December 31, 2002. The adoption of this statement had no impact on the condensed
consolidated financial statements.
9. Related Party Transactions
The Company manages one theatre with 12 screens for Laredo Theatre, Ltd
("Laredo"). Lone Star Theatres, Inc. owns 25% of the limited partnership
interests in Laredo. The Company is the sole general partner and owns the
remaining limited partnership interests. Lone Star Theatres, Inc. is owned 100%
by Mr. David Roberts, who is Mr. Mitchell's son-in-law. Under the agreement,
management fees are paid by Laredo to the Company at a rate of 5% of theatre
revenues in each year up to $50,000,000 and 3% of theater revenues in each year
in excess of $50,000,000. The Company recorded $36,410 of management fee
revenues and received no dividends from Laredo in the three month period ended
March 31, 2003. All such amounts are included in the Company's condensed
consolidated financial statements with the intercompany amounts eliminated in
consolidation.
The Company manages one theatre with eight screens for Mitchell
Theatres. Mitchell Theatres is 100% owned by members of Mr. Mitchell's family.
Under the agreement, management fees are paid by Mitchell Theatres to the
Company at a rate of 5% of theatre revenues. The term ends in November 2003.
However, the Company has the option to renew for one or more five-year periods.
The Company recorded $6,023 of management fee revenues from Mitchell Theatres in
the three month period ended March 31, 2003.
10
The Company leases one theatre with 7 screens from Plitt Plaza joint
venture. Plitt Plaza joint venture is indirectly owned by Lee Roy Mitchell. The
term of the lease expires in July 2003. The annual rent is approximately
$264,000 plus certain taxes, maintenance expenses, insurance, and a percentage
of gross admissions and concession receipts in excess of certain amounts. The
Company recorded $73,074 of facility lease expense payable to Plitt Plaza joint
venture during the three month period ended March 31, 2003.
The Company entered into a profit participation agreement dated May 17,
2002 with its President, Alan Stock, pursuant to which Mr. Stock receives a
profit interest in two recently built theatres after the Company has recovered
its capital investment in these theatres plus its borrowing costs. Under this
agreement, operating losses and disposition losses for any year are allocated
100% to the Company. Operating profits and disposition profits for these
theatres for any fiscal year are allocated first to the Company to the extent of
total operating losses and losses from any disposition of these theatres.
Thereafter, net cash from operations from these theatres or from any disposition
of these theatres is paid first to the Company until such payments equal the
Company's investment in these theatres, plus interest, and then 51% to the
Company and 49% to Mr. Stock. In the event that Mr. Stock's employment is
terminated without cause, profits will be distributed according to this formula
without first allowing the Company to recoup its investment plus interest
thereon. No amounts have been paid to Mr. Stock to date pursuant to the profit
participation agreement. Upon consummation of an initial public offering, the
Company will have the option to purchase Mr. Stock's interest in the theatres
for a price equal to the fair market value of the profit interest, as determined
by an independent appraiser. The Company does not intend to enter into similar
arrangements with its executive officers in the future.
10. Litigation and Litigation Settlements
The Company is currently a defendant in certain litigation proceedings
alleging certain violations of the Americans with Disabilities Act of 1990 (the
"ADA") relating to accessibility of movie theatres for handicapped and deaf
patrons.
In March 1999, the Department of Justice filed suit in the U.S. District
Court, Northern District of Ohio, Eastern Division, against the Company alleging
certain violations of the ADA relating to the Company's wheelchair seating
arrangements and seeking remedial action. An Order granting Summary Judgment to
the Company was issued in November 2001. The Department of Justice has appealed
the district court's ruling with the Sixth Circuit Court of Appeals. If the
Company loses this litigation, the Company's financial position, results of
operations and cash flows may be materially and adversely affected. The Company
is unable to predict the outcome of this litigation or the range of potential
loss, however, management believes that based upon current precedent the
Company's potential liability with respect to such proceeding is not material in
the aggregate to the Company's financial position, results of operations and
cash flows. Accordingly, the Company has not established a reserve for loss in
connection with this proceeding.
In August 2001, David Wittie, Rona Schnall, Ron Cranston, Jennifer
McPhail, Peggy Garaffa and ADAPT of Texas filed suit in the 201st Judicial
District Court of Travis County, Texas alleging certain violations of the Human
Resources Code, the Texas Architectural Barriers Act, the Texas Accessibility
Standards and the Deceptive Trade Practices Act relating to accessibility of
movie theatres for patrons using wheelchairs at two theatres located in the
Austin, Texas market. The plaintiffs were seeking remedial action and
unspecified damages. On February 20, 2003, a jury determined that the Company's
theatres located in the Austin, Texas market complied with the Human Resources
Code, the Texas Architectural Barriers Act and the Texas Accessibility
Standards. The judge granted summary judgment to the Company with respect to the
Deceptive Trade Practices Act. The Company cannot predict whether the plaintiffs
will appeal the jury's decision. If the jury's finding is appealed, the Company
is unable to predict the outcome of this litigation or the range of potential
loss, however, management believes that based upon current precedent the
Company's potential liability with respect to such proceeding is not material in
the aggregate to the Company's financial position, results of operations and
cash flows. Accordingly, the Company has not established a reserve for loss in
connection with this proceeding.
11
In July 2001, Sonia Rivera-Garcia and Valley Association for Independent
Living filed suit in the 93rd Judicial District Court of Hidalgo County, Texas
alleging certain violations of the Human Resources Code, the Texas Architectural
Barriers Act, the Texas Accessibility Standards and the Deceptive Trade
Practices Act relating to accessibility of movie theatres for patrons using
wheelchairs at one theatre in the Mission, Texas market. The plaintiffs are
seeking remedial action and unspecified damages. The Company has filed an answer
denying the allegations and is vigorously defending this suit. The Company is
unable to predict the outcome of this litigation or the range of potential loss,
however, management believes that based upon current precedent the Company's
potential liability with respect to such proceeding is not material in the
aggregate to the Company's financial position, results of operations and cash
flows. Accordingly, the Company has not established a reserve for loss in
connection with this proceeding.
The plaintiffs in the Department of Justice litigation, Austin, Texas
litigation and Mission, Texas litigation have argued that the theatres must
provide wheelchair seating locations with viewing angles to the screen that are
at the median or better than all seats in the auditorium. To date three courts
and one jury in a fourth court have rejected that position. In three of the four
courts, the Company was the defendant, and the courts or a jury have found the
Company's theatres to comply with the ADA; Lara v. Cinemark USA, Inc., United
States Court of Appeals for the Fifth Circuit; United States of America v.
Cinemark USA, Inc., United States District Court for the Northern District of
Ohio; and Wittie v. Cinemark USA, Inc., 201st Judicial District Court of Travis
County, Texas. Oregon Paralyzed Veterans of America v. Regal Cinemas, Inc.,
United States District Court for the District of Oregon, adopted the reasoning
established in Lara and granted summary judgment in favor of Regal Cinemas, Inc.
In May 2002, Robert Todd on behalf of Robert Preston Todd, his minor
child and "all individuals who are deaf or are severely hearing impaired"
brought this case in the United States District Court for the Southern District
of Texas, Houston Division against several movie theatre operators, including
AMC Entertainment, Inc., Regal Entertainment, Inc., the Company and Century
Theaters as well as eight movie Production companies. The lawsuit alleges
violation of Title III of the ADA and the First Amendment to the Constitution of
the United States. Plaintiffs seek unspecified injunctive relief, unspecified
declaratory relief, unspecified monetary damages (both actual and punitive) and
unspecified attorney's fees. The Company has denied any violation of law and
intends to vigorously defend against all claims. On March 7, 2003, the federal
district judge presiding over the case granted summary judgment to the
defendants on the alleged First Amendment violations. The Company is unable to
predict the outcome of this litigation or the range of potential loss, however,
management believes that based upon current precedent the Company's potential
liability with respect to such proceeding is not material in the aggregate to
the Company's financial position, results of operations and cash flows.
Accordingly, the Company has not established a reserve for loss in connection
with this proceeding.
The Company is also currently a defendant in other legal proceedings
discussed below:
In April 2002, the Malthouse Development Company Limited, as landlord,
filed a lawsuit in the High Court of Justice, Chancery Division, in England,
against Cinemark Theatres UK Limited and Cinemark International L.L.C., as
tenant and guarantor of tenant's obligations, respectively, under a lease for
the construction and operation of a movie theatre in Banbury, England. The lease
was previously terminated for cause by Cinemark Theatres UK Limited. The
Malthouse Development Company Limited is seeking damages for the U.S. dollar
equivalent of approximately $1.5 million based on an alleged improper
termination. Cinemark Theatres UK Limited and Cinemark International, L.L.C.
have filed an answer to the complaint, denying the allegations. The Company
intends to vigorously defend this suit. The Company is unable to predict the
outcome of this litigation or the range of potential loss, however, based on the
opinion of its barristers and Queen's counsel, the Company believes its
potential liability with respect to such proceeding is not material in the
aggregate to its financial position, results of operations and cash flows.
Accordingly, the Company has not established a reserve for loss in connection
with this proceeding.
12
From time to time, the Company is involved in other various legal
proceedings arising from the ordinary course of its business operations, such as
personal injury claims, employment matters and contractual disputes, most of
which are covered by insurance. The Company believes its potential liability
with respect to proceedings currently pending is not material in the aggregate
to the Company's financial position, results of operations and cash flows.
11. Stock Option Accounting
On May 16, 2002, Cinemark, Inc. was formed as the Delaware holding
company of Cinemark USA, Inc. Under a share exchange agreement, dated May 17,
2002, and after giving effect to a reverse stock split, each outstanding share
and each outstanding option to purchase shares of the Company was exchanged for
shares and options to purchase shares, respectively, of common stock of
Cinemark, Inc. As a result, the Company no longer has any options outstanding
under existing stock option plans. However, compensation expense resulting from
amortization of unearned compensation related to outstanding stock options of
Cinemark, Inc. is still being recorded in the Company's statement of operations.
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for the Company's stock option plans. Had
compensation costs been determined based on the fair value at the date of grant
for awards under the plans, consistent with the method of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
and SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure", the Company's net income and earnings per share would have been
reduced to the proforma amounts indicated below:
Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
Net income as reported $5,452,926 $6,840,943
Compensation expense included in reported
net income, net of tax 274,297 277,280
Compensation expense under fair value method,
net of tax (339,414) (342,397)
----------- -----------
Pro-forma net income $5,387,809 $6,775,826
=========== ===========
Earnings per share:
Basic earnings per share $29.61 $37.15
Pro-forma basic earnings per share $29.26 $36.80
Diluted earnings per share $29.61 $36.48
Pro-forma diluted earnings per share $29.26 $36.14
No stock options were granted in 2002 or the three month period ended
March 31, 2003. The following assumptions were used in the calculation of fair
value: dividend yield of 0 percent; an expected life of 6.5 years; expected
volatility of approximately 38 percent; and risk-free interest rates of
approximately 5% at the time of the last option grant date in 2001.
13
12. Long-Term Debt Refinancing
On February 11, 2003, the Company issued $150 million principal amount
of 9% Senior Subordinated Notes to qualified institutional buyers in reliance on
Rule 144A of the Securities Act. Interest is payable on February 1 and August 1
of each year, beginning on August 1, 2003. The notes mature on February 1, 2013.
The net proceeds of approximately $145.9 million from the issuance of the 9%
Senior Subordinated Notes were used to repay a portion of the Company's existing
Credit Facility.
The Company may redeem all or part of the notes on or after February 1,
2008. Prior to February 1, 2006, the Company may redeem up to 35% of the
aggregate principal amount of the notes from the proceeds of certain equity
offerings. The notes are general, unsecured obligations, are subordinated to the
Company's senior debt and rank pari passu with the Company's previously issued
senior subordinated debt. The notes are guaranteed by certain of the Company's
domestic subsidiaries. The guarantees are subordinated to the senior debt of the
Company's guarantor subsidiaries and rank pari passu with the senior
subordinated debt of the guarantor subsidiaries. The notes are effectively
subordinated to the indebtedness and other liabilities of the non-guarantor
subsidiaries.
The Company and the guarantor subsidiaries have agreed to file a
registration statement with the Securities and Exchange Commission relating to
an offer to exchange these new notes due 2013 for publicly tradable notes having
substantially identical terms. In addition, the Company may be required to file
a shelf registration statement covering resales of the new notes by holders of
the new notes. The new notes are expected to be designated for trading in the
Private Offering, Resales and Trading Automatic Linkages (PORTAL SM) Market.
On February 14, 2003, the Company entered into a new senior secured
credit facility consisting of a $75 million revolving credit line and a $125
million term loan with Lehman Commercial Paper, Inc. for itself and as
administrative agent for a syndicate of lenders. The new credit facility
provides for incremental loans of up to $100 million. The new credit facility is
guaranteed by the guarantors of the senior subordinated notes and is secured by
mortgages on certain fee and leasehold properties and security interests on
certain personal and intangible property, including without limitation, pledges
of all of the capital stock of certain domestic subsidiaries and 65% of the
voting stock of certain of the Company's foreign subsidiaries. The net proceeds
from the new credit facility were used to repay, in full, the then existing
Credit Facility and the Cinema Properties Facility. The term of the revolving
credit line is five years. The term loan matures on March 31, 2008 or March 31,
2009, if the maturity of the Company's existing senior subordinated debt is
extended beyond September 30, 2009.
Borrowings under the revolving credit line bear interest, at the
Company's option, at: (A) a margin of 2.00% per annum plus a "base rate" equal
to the higher of (i) the prime lending rate as set forth on the British Banking
Association Telerate page 5 or (ii) the federal funds effective rate from time
to time plus 0.50%, or (B) a "eurodollar rate" equal to the rate at which
eurodollar deposits are offered in the interbank eurodollar market for terms of
one, two, three or six, or (if available to all lenders in their sole
discretion) nine or twelve months, as selected by the Company, plus a margin of
3.00% per annum. After September 30, 2003 the margin applicable to base rate
loans will range from 1.25% per annum to 2.00% per annum and the margin
applicable to eurodollar rate loans ranges from 2.25% per annum to 3.00% per
annum based upon the Company achieving certain ratios of debt to consolidated
EBITDA (as defined in the new Credit Facility).
The term loan reduces automatically each calendar quarter by $312,500
from June 30, 2003 to March 31, 2007 and then reduces by $30,000,000 each
calendar quarter from June 30, 2007 to maturity at March 31, 2008. $1,250,000 is
due on or before March 31, 2004 and thus is classified as current portion of
long-term debt. The term loan bears interest, at the Company's option, at: (A)
the base rate plus a margin of 1.75% or (B) the eurodollar rate plus a margin of
2.75%.
The loss on early retirement of debt of $1,645,759 recorded in the
condensed consolidated statement of operations for the three month period ended
March 31, 2003 related to the write-off of unamortized debt issue costs
associated with the Company's existing Credit Facility and the Cinema Properties
Facility.
14
13. Condensed Consolidated Financial Statements of Subsidiary Guarantors
On February 11, 2003, the Company completed a private placement of $150
million 9% Senior Subordinated Notes due 2013 (the "2003 Senior Subordinated
Notes") pursuant to rule 144A. The 2003 Senior Subordinated Notes are fully and
unconditionally guaranteed, jointly and severally, on a senior subordinated
unsecured basis by the following wholly-owned subsidiaries of Cinemark USA,
Inc.:
Cinemark, L.L.C., Sunnymeade Cinema Corp., Cinema Properties, Inc.,
Greeley Holdings, Inc. (formerly known as Cinemark Paradiso, Inc.), Trans Texas
Cinema, Inc., Missouri City Central 6, Inc., Cinemark Mexico (USA), Inc.,
Cinemark Leasing Company, Cinemark Partners I, Inc., Multiplex Properties, Inc.,
Multiplex Services, Inc., CNMK Investments, Inc., CNMK Delaware Investments I,
L.L.C., CNMK Delaware Investments II, L.L.C., CNMK Delaware Investments
Properties, L.P., CNMK Texas Properties, Ltd, Laredo Theatre, Ltd. and Cinemark
Investments Corporation.
The following supplemental condensed consolidating financial statements
present:
1. Condensed consolidating balance sheets as of March 31, 2003 and
December 31, 2002 and condensed consolidating statements of
operations and cash flows for each of the three month periods
ended March 31, 2003 and 2002.
2. Cinemark USA, Inc. (the "Parent" and "Issuer"), combined Guarantor
Subsidiaries and combined Non-Guarantor Subsidiaries with their
investments in subsidiaries accounted for using the equity
method of accounting and therefore, the Parent column reflects
the equity income (loss) of its Guarantor Subsidiaries and
Non-Guarantor Subsidiaries, which are also separately reflected
in the stand alone Guarantor Subsidiaries and Non-Guarantor
Subsidiaries column. Additionally, the Guarantor Subsidiaries
column reflects the equity income (loss) of its Non-Guarantor
Subsidiaries, which are also separately reflected in the
stand-alone Non-Guarantor Subsidiaries column.
3. Elimination entries necessary to consolidate the Parent and all of
its Subsidiaries.
15
SUBSIDIARY GUARANTORS
CONSOLIDATING BALANCE SHEET INFORMATION
MARCH 31, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Parent Subsidiary Subsidiary
ASSETS Company Guarantors Non-Guarantors Eliminations Consolidated
CURRENT ASSETS
Cash and cash equivalents $ 8,497,480 $ 1,930,859 $ 32,220,235 $ - $ 42,648,574
Inventories 1,622,682 955,028 1,111,722 - 3,689,432
Accounts receivable 42,400,821 (13,910,449) 7,119,638 (24,233,094) 11,376,916
Income tax receivable (371,244) 1,039,408 1,279,900 - 1,948,064
Prepaid expenses and other 5,482,496 444,169 1,598,778 (3,000,000) 4,525,443
-----------------------------------------------------------------------
Total current assets 57,632,235 (9,540,985) 43,330,273 (27,233,094) 64,188,429
THEATRE PROPERTIES AND EQUIPMENT - net 313,161,078 293,957,959 177,175,188 - 784,294,225
OTHER ASSETS
Goodwill 7,897,512 412,327 2,644,347 (198,875) 10,755,311
Investments in and advances to affiliates 460,725,816 333,508,476 28,815,409 (820,121,542) 2,928,159
Deferred charges and other - net 21,878,773 1,283,775 73,593,395 (59,996,395) 36,759,548
-----------------------------------------------------------------------
Total other assets 490,502,101 335,204,578 105,053,151 (880,316,812) 50,443,018
-----------------------------------------------------------------------
TOTAL ASSETS $861,295,414 $619,621,552 $325,558,612 $(907,549,906) $898,925,672
=======================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,305,629 $ - $ 4,696,375 $ - $ 6,002,004
Accounts payable and accrued expenses 46,314,756 32,145,184 29,656,015 (24,148,124) 83,967,831
-----------------------------------------------------------------------
Total current liabilities 47,620,385 32,145,184 34,352,390 (24,148,124) 89,969,835
LONG-TERM LIABILITIES
Long-term debt, less current portion 693,308,840 45,237,910 88,407,819 (128,857,122) 698,097,447
Deferred income taxes 16,109,042 5,519,944 (6,638,841) - 14,990,145
Other long-term liabilities and deferrals 28,870,883 73,183,415 4,367,103 (72,990,000) 33,431,401
-----------------------------------------------------------------------
Total long-term liabilities 738,288,765 123,941,269 86,136,081 (201,847,122) 746,518,993
COMMITMENTS AND CONTINGENCIES - - - - -
MINORITY INTERESTS IN SUBSIDIARIES - 1,251,307 26,847,360 - 28,098,667
SHAREHOLDER'S EQUITY
Common stock 49,546,775 25,787 111,543,705 (111,572,825) 49,543,442
Other shareholder's equity 25,839,489 462,258,005 66,679,076 (569,981,835) (15,205,265)
-----------------------------------------------------------------------
Total shareholder's equity 75,386,264 462,283,792 178,222,781 (681,554,660) 34,338,177
-----------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $861,295,414 $619,621,552 $325,558,612 $(907,549,906) $898,925,672
=======================================================================
16
SUBSIDIARY GUARANTORS
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
THREE MONTHS ENDED MARCH 31, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Parent Subsidiary Subsidiary
Company Guarantors Non-Guarantors Eliminations Consolidated
REVENUES $ 97,727,633 $ 70,797,068 $ 50,274,733 $ (14,797,675) $204,001,759
COSTS AND EXPENSES
Cost of operations 87,109,837 44,162,240 37,710,998 (14,917,288) 154,065,787
General and administrative expenses 862,824 5,581,358 3,026,019 119,613 9,589,814
Depreciation and amortization 5,345,673 5,443,162 5,348,079 - 16,136,914
(Gain) loss on sale of assets and other 49,562 (666,782) 791 - (616,429)
-----------------------------------------------------------------------
Total costs and expenses 93,367,896 54,519,978 46,085,887 (14,797,675) 179,176,086
-----------------------------------------------------------------------
OPERATING INCOME 4,359,737 16,277,090 4,188,846 - 24,825,673
OTHER INCOME (EXPENSE)
Interest expense (12,454,151) (1,648,630) (1,921,381) 2,728,554 (13,295,608)
Amortization of debt issue cost (430,657) (130,329) (22,634) - (583,620)
Interest income 1,270,261 1,528,837 588,085 (2,728,554) 658,629
Foreign currency exchange gain - - 16,131 - 16,131
Loss on early retirement of debt (762,137) (883,622) - - (1,645,759)
Equity in income (loss) of affiliates 14,352,675 1,498,941 128,334 (15,783,594) 196,356
Minority interests in income of subsidiaries - (15,004) (755,201) - (770,205)
-----------------------------------------------------------------------
Total other income (expense) 1,975,991 350,193 (1,966,666) (15,783,594) (15,424,076)
-----------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 6,335,728 16,627,283 2,222,180 (15,783,594) 9,401,597
Income taxes 864,600 2,562,379 521,692 - 3,948,671
-----------------------------------------------------------------------
NET INCOME (LOSS) $ 5,471,128 $ 14,064,904 $ 1,700,488 $ (15,783,594) $ 5,452,926
=======================================================================
17
SUBSIDIARY GUARANTORS
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
THREE MONTHS ENDED MARCH 31, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Parent Subsidiary Subsidiary
Company Guarantors Non-Guarantors Eliminations Consolidated
OPERATING ACTIVITIES
Net income (loss) $ 5,471,128 $ 14,064,904 $ 1,700,488 $ (15,783,594) $ 5,452,926
Noncash items in net income (loss):
Depreciation and amortization 4,783,794 5,573,491 5,794,320 - 16,151,605
(Gain) loss on sale of assets and other 49,562 (666,782) 791 - (616,429)
Loss on early retirement of debt 1,645,759 - - - 1,645,759
Deferred lease expenses 7,958,915 (7,539,575) (39,838) - 379,502
Deferred income tax expenses 5,733,619 (2,505,646) 592,044 - 3,820,017
Equity in (income) loss of affiliates (14,352,675) (1,498,941) (128,334) 15,783,594 (196,356)
Minority interests in income of subsidiaries - 15,004 755,201 - 770,205
Cash provided by (used for) operating working capital (49,580,775) 14,775,869 (3,137,738) (5,117,261) (43,059,905)
-----------------------------------------------------------------------
Net cash provided by (used for) operating activities (38,290,673) 22,218,324 5,536,934 (5,117,261) (15,652,676)
INVESTING ACTIVITIES
Additions to theatre properties and equipment (1,919,479) (1,674,120) (5,009,675) - (8,603,274)
Sale of theatre properties and equipment - 1,484,619 5,955 - 1,490,574
Net transactions with affiliates (40,408,341) 8,762,445 6,235,944 25,406,638 (3,314)
-----------------------------------------------------------------------
Net cash provided by (used for) investing activities (42,327,820) 8,572,944 1,232,224 25,406,638 (7,116,014)
FINANCING ACTIVITIES
Issuance of senior subordinated notes 150,000,000 - - - 150,000,000
Increase in long-term debt 226,004,596 - - - 226,004,596
Decrease in long-term debt (285,664,100) (74,335,900) (4,361,185) - (364,361,185)
Increase in debt issue cost (10,712,267) - - - (10,712,267)
Change in intercompany notes - 21,640,000 (1,350,623) (20,289,377) -
Increase in minority investment in subsidiaries - - 894,354 - 894,354
Decrease in minority investment in subsidiaries - - (280,821) - (280,821)
-----------------------------------------------------------------------
Net cash provided by (used for) financing activities 79,628,229 (52,695,900) (5,098,275) (20,289,377) 1,544,677
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS - - 154,072 - 154,072
-----------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (990,264) (21,904,632) 1,824,955 - (21,069,941)
CASH AND CASH EQUIVALENTS:
Beginning of period 9,487,744 23,835,491 30,395,280 - 63,718,515
-----------------------------------------------------------------------
End of period $ 8,497,480 $ 1,930,859 $ 32,220,235 $ - $ 42,648,574
=======================================================================
18
SUBSIDIARY GUARANTORS
CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Parent Subsidiary Subsidiary
ASSETS Company Guarantors Non-Guarantors Eliminations Consolidated
CURRENT ASSETS
Cash and cash equivalents $ 9,487,744 $ 23,835,491 $ 30,395,280 $ - $ 63,718,515
Inventories 1,618,111 924,709 1,146,095 - 3,688,915
Accounts receivable 20,715,100 7,577,935 8,127,358 (23,978,544) 12,441,849
Income tax receivable (76,969) 745,133 47,767 - 715,931
Prepaid expenses and other 4,948,540 2,459,454 1,281,141 (4,595,000) 4,094,135
-----------------------------------------------------------------------
Total current assets 36,692,526 35,542,722 40,997,641 (28,573,544) 84,659,345
THEATRE PROPERTIES AND EQUIPMENT - net 297,727,453 317,354,222 176,648,828 - 791,730,503
OTHER ASSETS
Goodwill 5,275,538 3,034,301 2,442,005 - 10,751,844
Investments in and advances to affiliates 419,075,595 277,255,664 28,970,718 (722,261,037) 3,040,940
Deferred charges and other - net 9,002,357 5,347,599 74,064,083 (61,782,743) 26,631,296
-----------------------------------------------------------------------
Total other assets 433,353,490 285,637,564 105,476,806 (784,043,780) 40,424,080
-----------------------------------------------------------------------
TOTAL ASSETS $767,773,469 $638,534,508 $323,123,275 $(812,617,324) $916,813,928
=======================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 55,629 $ 23,000,000 $ 7,134,820 $ - $ 30,190,449
Accounts payable and accrued expenses 72,131,876 43,636,926 32,228,042 (23,759,532) 124,237,312
-----------------------------------------------------------------------
Total current liabilities 72,187,505 66,636,926 39,362,862 (23,759,532) 154,427,761
LONG-TERM LIABILITIES
Long-term debt, less current portion 594,977,372 74,956,909 83,521,345 (91,059,238) 662,396,388
Deferred income taxes 10,375,423 8,025,590 (7,230,885) - 11,170,128
Other long-term liabilities and deferrals 19,858,840 84,630,823 4,434,784 (74,585,000) 34,339,447
-----------------------------------------------------------------------
Total long-term liabilities 625,211,635 167,613,322 80,725,244 (165,644,238) 707,905,963
COMMITMENTS AND CONTINGENCIES - - - - -
MINORITY INTERESTS IN SUBSIDIARIES - 1,236,303 25,478,626 - 26,714,929
SHAREHOLDER'S EQUITY
Common stock 49,546,772 25,789 111,543,706 (111,572,825) 49,543,442
Other shareholder's equity 20,827,557 403,022,168 66,012,837 (511,640,729) (21,778,167)
-----------------------------------------------------------------------
Total shareholder's equity 70,374,329 403,047,957 177,556,543 (623,213,554) 27,765,275
-----------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $767,773,469 $638,534,508 $323,123,275 $(812,617,324) $916,813,928
=======================================================================
19
SUBSIDIARY GUARANTORS
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
THREE MONTHS ENDED MARCH 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Parent Subsidiary Subsidiary
Company Guarantors Non-Guarantors Eliminations Consolidated
REVENUES $105,451,575 $ 72,621,805 $ 61,753,092 $ (13,124,366) $226,702,106
COSTS AND EXPENSES
Cost of operations 83,964,824 52,101,063 44,310,711 (13,124,366) 167,252,232
General and administrative expenses 7,523,481 - 3,119,536 - 10,643,017
Depreciation and amortization 5,396,951 1,998,193 9,771,637 - 17,166,781
Asset impairment loss - - 558,398 - 558,398
Loss on sale of assets and other 217,002 107,851 214,339 - 539,192
-----------------------------------------------------------------------
Total costs and expenses 97,102,258 54,207,107 57,974,621 (13,124,366) 196,159,620
-----------------------------------------------------------------------
OPERATING INCOME 8,349,317 18,414,698 3,778,471 - 30,542,486
OTHER INCOME (EXPENSE)
Interest expense (13,677,509) (1,014,876) (2,715,376) 2,623,824 (14,783,937)
Amortization of debt issue cost (563,017) (24,584) (3,569) - (591,170)
Interest income 532,582 2,196,741 377,840 (2,623,824) 483,339
Foreign currency exchange loss - - (220,997) - (220,997)
Equity in income (loss) of affiliates 12,734,509 (715,980) 115,154 (12,016,942) 116,741
Minority interests in income of subsidiaries - (52,351) (824,120) - (876,471)
-----------------------------------------------------------------------
Total other income (expense) (973,435) 388,950 (3,271,068) (12,016,942) (15,872,495)
-----------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 7,375,882 18,803,648 507,403 (12,016,942) 14,669,991
Income taxes 458,780 3,061,629 918,860 - 4,439,269
-----------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF AN
ACCOUNTING CHANGE 6,917,102 15,742,019 (411,457) (12,016,942) 10,230,722
Cumulative effect of a change in accounting principle,
net of tax benefit of $0. (91,394) (3,298,385) - - (3,389,779)
-----------------------------------------------------------------------
NET INCOME (LOSS) $ 6,825,708 $ 12,443,634 $ (411,457) $ (12,016,942) $ 6,840,943
=======================================================================
20
SUBSIDIARY GUARANTORS
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
THREE MONTHS ENDED MARCH 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Parent Subsidiary Subsidiary
Company Guarantors Non-Guarantors Eliminations Consolidated
OPERATING ACTIVITIES
Net income (loss) $ 6,825,708 $ 12,443,634 $ (411,457) $ (12,016,942) $ 6,840,943
Noncash items in net income (loss):
Depreciation and amortization 4,970,415 5,321,162 6,974,784 - 17,266,361
Loss on impairment of assets - - 558,398 - 558,398
Loss on sale of assets and other 217,002 107,851 214,339 - 539,192
Deferred lease expenses 515,570 (83,447) 22,079 - 454,202
Deferred income tax expenses 4,944,978 5,405,719 - - 10,350,697
Equity in (income) loss of affiliates (12,734,509) 715,980 (115,154) 12,016,942 (116,741)
Minority interests in income of subsidiaries - 52,351 824,120 - 876,471
Cumulative effect of an accounting change 91,394 3,298,385 - - 3,389,779
Cash provided by (used for) operating working capital (19,197,415) 62,785,561 (72,046,737) 1,708,991 (26,749,600)
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Net cash provided by (used for) operating activities (14,366,857) 90,047,196 (63,979,628) 1,708,991 13,409,702
INVESTING ACTIVITIES
Additions to theatre properties and equipment (1,063,465) (557,766) (7,035,539) - (8,656,770)
Sale of theatre properties and equipment 1,504,441 - - - 1,504,441
Net transactions with affiliates 10,637,456 (84,433,029) 7,628,980 66,666,593 500,000
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Net cash provided by (used for) investing activities 11,078,432 (84,990,795) 593,441 66,666,593 (6,652,329)
FINANCING ACTIVITIES
Increase in long-term debt 17,505,311 - 267,517 - 17,772,828
Decrease in long-term debt (12,500,000) - (2,670,540) - (15,170,540)
Change in intercompany notes - - 68,375,584 (68,375,584) -
Increase in minority investment in subsidiaries - - 421,855 - 421,855
Decrease in minority investment in subsidiaries - (50,000) (159,028) - (209,028)
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Net cash provided by (used for) financing activities 5,005,311 (50,000) 66,235,388 (68,375,584) 2,815,115
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS - - (334,209) - (334,209)
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INCREASE IN CASH AND CASH EQUIVALENTS 1,716,886 5,006,401 2,514,992 - 9,238,279
CASH AND CASH EQUIVALENTS:
Beginning of period 8,590,808 12,560,326 29,048,089 - 50,199,223
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End of period $ 10,307,694 $ 17,566,727 $ 31,563,081 $ - $ 59,437,502
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21
14. Subsequent Event
On April 18, 2003, the Company announced it was commencing a tender
offer for up to $240 million aggregate principal amount of its outstanding $200
million 9 5/8% Series B Subordinated Notes due 2008 and $75 million 9 5/8%
Series D Subordinated Notes due 2008.
On May 7, 2003, the Company issued an additional $210 million of 9%
Senior Subordinated Notes due 2013 at a premium of 107.25% of the face amount to
qualified institutional buyers in reliance on Rule 144A of the Securities Act.
The new notes were offered as additional debt securities under an indenture
pursuant to which, on February 11, 2003, the Company issued $150 million of 9%
Senior Subordinated Notes due 2013 (see note 12). Interest is payable on
February 1 and August 1 of each year, beginning on August 1, 2003. The notes
mature on February 1, 2013. The net proceeds of this add-on issuance and
additional borrowings under the Company's senior secured credit facility were
utilized to fund the purchase of approximately $233.0 million of bonds tendered
as of midnight on May 15, 2003 pursuant to the April 18, 2003 tender offer.
The Company and the guarantor subsidiaries have agreed to file a
registration statement with the Securities and Exchange Commission relating to
an offer to exchange these new notes due 2013 for publicly tradable notes having
substantially identical terms. In addition, the Company may be required to file
a shelf registration statement covering resales of the new notes by holders of
the new notes. The new notes are expected to be designated for trading in the
Private Offering, Resales and Trading Automatic Linkages (PORTAL SM) Market.
22
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is an analysis of our financial condition and results of
operations. This analysis should be read in conjunction with our Condensed
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere in this report.
Overview
We generate revenues primarily from box office receipts, concession
sales and screen advertising sales. Revenues are recognized when admissions and
concession sales are received at the box office and screen advertising is shown
at the theatres. Our revenues are affected by changes in attendance and average
admissions and concession revenues per patron. Attendance is primarily affected
by the commercial appeal of the films released during the period reported. We
generate additional revenues related to theatre operations from vendor marketing
programs, pay phones, ATM machines and electronic video games installed in video
arcades located in some of our theatres.
Film rentals and advertising, concession supplies and salaries and wages
vary directly with changes in revenues. Film rental costs are accrued based on
the applicable box office receipts and either the mutually agreed upon firm
terms or estimates of the final settlement depending on the film licensing
arrangement. Advertising costs borne by us, which are expensed as incurred, are
primarily fixed at the theatre level as daily movie directories placed in
newspapers represent the largest component of advertising costs. The monthly
cost of these ads is based on, among other things, the size of the directory and
the frequency and size of the newspaper's circulation. We purchase concession
supplies to replace units sold. Although salaries and wages include a fixed
component of cost (i.e. the minimum staffing cost to operate a theatre facility
during non-peak periods), salaries and wages move in relation to revenues as
theatre staffing is adjusted to handle attendance volume.
Facility lease expense is primarily a fixed cost at the theatre level as
our facility leases generally require a fixed monthly minimum rent payment.
Facility lease expense as a percentage of revenues is also affected by the
number of leased versus fee owned facilities.
Utilities and other costs include certain costs that are fixed such as
property taxes, certain costs which are variable such as liability insurance,
and certain costs that possess both fixed and variable components such as
utilities, repairs and maintenance and security services.
Critical Accounting Policies
We prepare our condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America.
As such, we are required to make certain estimates, judgments and assumptions
that we believe are reasonable based upon the information available. These
estimates, judgments and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. The significant accounting
policies which we believe are the most critical to aid in fully understanding
and evaluating our reported financial results are included in our Annual Report
filed March 19, 2003 on Form 10-K. No significant changes have been made to our
critical accounting policies during the period covered by this filing.
23
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of revenues represented by certain items reflected in our condensed
consolidated statements of operations.
% of Revenues
Three Months Ended
March 31,
---------
2003 2002
---- ----
Revenues
Admissions 63.1% 64.6%
Concession 31.6 30.6
Other 5.3 4.8
------ ------
Total revenues 100.0 100.0
Cost of operations 75.5 73.8
General and administrative expenses 4.7 4.7
Depreciation and amortization 7.9 7.6
Asset impairment loss - 0.2
(Gain) loss on sale of assets and other (0.3) 0.2
------ ------
Total operating expenses 87.8 86.5
------ ------
Operating income 12.2 13.5
Interest expense (6.8) (6.8)
Income taxes 1.9 2.0
Income before cumulative effect of an accounting change 2.7 4.5
Net income 2.7 3.0
First quarter ended March 31, 2003 and 2002
Revenues
Revenues for the first quarter ended March 31, 2003 decreased to $204.0
million from $226.7 million for the first quarter ended March 31, 2002, a 10.0%
decrease. The decrease in revenues is primarily attributable to a 7.2% decrease
in attendance resulting from the weaker film product. Revenues per average
screen decreased 10.7% to $67,422 in the first quarter of 2003 from $75,492 in
the first quarter of 2002.
24
Cost of Operations
Cost of operations, as a percentage of revenues, increased to 75.5% in
the first quarter of 2003 from 73.8% in the first quarter of 2002. The increase
as a percentage of revenues was primarily due to the 10.0% decrease in revenues
and the fact that some of our theatre operating costs are fixed in nature. The
increase as a percentage of revenues resulted from an increase in salaries and
wages as a percentage of revenues to 11.1% in the first quarter of 2003 from
9.9% in the first quarter of 2002, an increase in facility lease expense as a
percentage of revenues to 14.1% in the first quarter of 2003 from 12.9% in the
first quarter of 2002 and an increase in utilities and other costs as a
percentage of revenues to 12.5% in the first quarter of 2003 from 11.8% in the
first quarter of 2002. These increases were partially offset by a decrease in
concession supplies as a percentage of concession revenues to 15.4% in the first
quarter of 2003 from 17.3% in the first quarter of 2002 and a decrease in film
rentals and advertising as a percentage of admissions revenues to 52.3% in the
first quarter of 2003 from 52.5% in the first quarter of 2002. The decrease in
concession supplies as a percentage of concession revenues is primarily related
to the successful implementation of a domestic concession price increase in the
fourth quarter of 2002. The decrease in film rentals and advertising as a
percentage of admissions revenues is primarily related to the weaker film
product in the first quarter of 2003 in comparison with the first quarter of
2002.
General and Administrative Expenses
General and administrative expenses, as a percentage of revenues,
remained consistent at 4.7% for the first quarter of 2003 and the first quarter
of 2002. General and administrative expenses decreased to $9.6 million in the
first quarter of 2003 from $10.6 million in the first quarter of 2002. The
decrease is primarily attributed to a decrease in accrued bonus expense.
Depreciation and Amortization
Depreciation and amortization, as a percentage of revenues, increased to
7.9% for the first quarter of 2003 from 7.6% for the first quarter of 2002.
Depreciation and amortization decreased to $16.1 million in the first quarter of
2003 from $17.2 million in the first quarter of 2002. The decrease in the
absolute level of depreciation and amortization is primarily related to the
reduction in the depreciable basis of properties and equipment resulting from
the devaluation in foreign currencies and a decline in new construction.
Asset Impairment Loss
The Company recorded asset impairment charges of $0.6 million in the
first quarter of 2002, pursuant to Statement of Financial Accounting Standards
No. 142 related to assets held for use. The asset impairment charges recorded in
the first quarter of 2002 related to the write-down to fair value of goodwill
associated with the Company's Argentina operations.
Interest Expense
Interest costs incurred, including amortization of debt issue cost,
decreased 9.7% in the first quarter of 2003 to $13.9 million from $15.4 million
in the first quarter of 2002. The decrease was due principally to a decrease in
the average debt outstanding under the Company's long-term debt agreements.
Income Taxes
Income tax expense of $3.9 million was recorded in the first quarter of
2003 in comparison with income tax expense of $4.4 million in the first quarter
of 2002. The Company's effective tax rate for the first quarter of 2003 was
42.0% as compared to 30.3% for the first quarter of 2002. The change in the
effective tax rate is primarily due to an increase in foreign permanent
differences and the impact on the 2002 rate resulting from the cumulative effect
of an accounting change.
25
Income Before Cumulative Effect of an Accounting Change
The Company realized income before cumulative effect of an accounting
change of $5.5 million for the first quarter of 2003 in comparison with income
before cumulative effect of an accounting change of $10.2 million for the first
quarter of 2002. The decrease is primarily related to the 10.0% decrease in
revenues.
Liquidity and Capital Resources
Operating Activities
We primarily collect our revenues in cash, mainly through box office
receipts and the sale of concession supplies. We are expanding the number of
theatres that provide the patron a choice of using a credit card, in place of
cash, which we convert to cash in approximately three to four days. Because our
revenues are received in cash prior to the payment of related expenses, we have
an operating "float" and historically have not required traditional working
capital financing. We typically operate with a negative working capital position
for our ongoing theatre operations throughout the year, primarily because of the
lack of significant inventory and accounts receivable.
Investing Activities
Our investing activities have been principally related to the
development and acquisition of additional theatres. New theatre openings and
acquisitions historically have been financed with internally generated cash and
by debt financing, including borrowings under our credit facility.
We are continuing to expand our U.S. theatre circuit which consists of
2,206 screens at March 31, 2003. As of March 31, 2003, we have signed
commitments for eight new theatres with 100 screens and a five screen expansion
to an existing theatre scheduled to open in the U.S. in 2003 and thereafter. We
estimate the remaining capital expenditures for the development of these 105
screens in the U.S. will be approximately $35 million. Actual expenditures for
continued theatre development and acquisitions are subject to change based upon
the availability of attractive opportunities. We plan to fund capital
expenditures for our continued development from cash flow from operations,
borrowings under our credit facility, subordinated note borrowings, proceeds
from sale leaseback transactions and/or sales of excess real estate.
Additionally, we may from time to time, subject to compliance with our debt
instruments, purchase on the open market our debt securities depending upon the
availability and prices of such securities.
We are also continuing to expand our international theatre circuit. We
added two screens to an existing theatre in the three month period ended March
31, 2003 bringing our total international screen count to 818 screens. As of
March 31, 2003, we have five new theatres with 32 screens scheduled to open in
international markets in 2003 and thereafter. We estimate the remaining capital
expenditures for the development of these 32 screens in international markets
will be approximately $15 million. Actual expenditures for continued theatre
development and acquisitions are subject to change based upon the availability
of attractive opportunities. We anticipate that investments in excess of
available cash will be funded by us or by debt or equity financing to be
provided by third parties directly to our subsidiaries.
26
Financing Activities
As of March 31, 2003, our long-term debt obligations, capital lease
obligations and future minimum lease obligations under non-cancelable operating
leases for each period indicated are summarized as follows:
Payments Due by Period
(In millions)
Less Than After 5
Contractual Obligations Total 1 Year 1-3 Years 4-5 Years Years
- ----------------------------------------- -------- --------- --------- --------- --------
Long-term debt........................... $ 704.1 $ 6.0 $ 12.8 $ 155.1 $ 530.2
Capital lease obligations................ 0.2 0.2 -- -- --
Operating lease obligations.............. 1,461.2 100.7 207.1 206.7 946.7
As of March 31, 2003, we were in full compliance with all agreements
governing our outstanding debt.
New Senior Subordinated Notes Issuance
On February 11, 2003, we issued $150 million of 9% Senior Subordinated
Notes due 2013. Interest is payable on February 1 and August 1 of each year,
beginning on August 1, 2003. The notes will mature on February 1, 2013. The net
proceeds of approximately $145.9 million from the issuance of the 9% Senior
Subordinated Notes were used to repay a portion of our then existing credit
facility.
We may redeem all or part of the notes on or after February 1, 2008.
Prior to February 1, 2006, we may redeem up to 35% of the aggregate principal
amount of the notes from the proceeds of certain equity offerings. The notes are
general, unsecured obligations, are subordinated to our senior debt, and rank
pari passu with our existing senior subordinated debt. The notes are guaranteed
by certain of our domestic subsidiaries. The guarantees are subordinated to the
senior debt of the subsidiary guarantors and rank pari passu with the senior
subordinated debt of our guarantor subsidiaries. The notes are effectively
subordinated to the indebtedness and other liabilities of the Company's
non-guarantor subsidiaries.
The Company and the guarantor subsidiaries have agreed to file a
registration statement with the Securities and Exchange Commission relating to
an offer to exchange these new notes due 2013 for publicly tradable notes having
substantially identical terms. In addition, the Company may be required to file
a shelf registration statement covering resales of the new notes by holders of
the new notes. The new notes are expected to be designated for trading in the
Private Offering, Resales and Trading Automatic Linkages (PORTAL SM) Market.
Senior Subordinated Notes
As of March 31, 2003, we have outstanding four issues of senior
subordinated notes: (1) $200 million in 9 5/8% Series B Senior Subordinated
Notes due 2008; (2) $75 million in 9 5/8% Series D Senior Subordinated Notes due
2008; (3) $105 million in 8 1/2% Series B Senior Subordinated Notes due 2008;
and (4) $150 million in 9% Senior Subordinated Notes due 2013. Interest in each
issue is payable semi-annually on February 1 and August 1 of each year.
The indentures governing the senior subordinated notes contain covenants
that limit, among other things, dividends, transactions with affiliates,
investments, sale of assets, mergers, repurchases of our capital stock, liens
and additional indebtedness. Upon a change of control, we would be required to
make an offer to repurchase the senior subordinated notes at a price equal to
101% of the principal amount outstanding plus accrued and unpaid interest
through the date of repurchase. The indentures governing the senior subordinated
notes allow us to incur additional indebtedness if we satisfy the coverage ratio
specified in each indenture, after giving effect to the incurrence of the
additional indebtedness, and in certain other circumstances.
27
The senior subordinated notes are general unsecured obligations
subordinated in right of payment to the credit agreement or other senior
indebtedness. Generally, if we are in default under the senior credit facility
and other senior indebtedness, we would not be allowed to make payments on the
senior subordinated notes until the defaults have been cured or waived. If we
fail to make any payments when due or within the applicable grace period, we
would be in default under the indentures governing the senior subordinated
notes.
All the senior subordinated notes are guaranteed by certain of our
domestic subsidiaries.
New Senior Secured Credit Facility
On February 14, 2003, we entered into a new senior secured credit
facility consisting of a $75 million revolving credit line and a $125 million
term loan with Lehman Commercial Paper, Inc. for itself and as administrative
agent for a syndicate of lenders. The new credit facility provides for
incremental term loans of up to $100 million. The new credit facility is
guaranteed by the guarantors of the new senior subordinated notes and is secured
by mortgages on certain fee and leasehold properties and security interests on
certain personal and intangible property, including without limitation, pledges
of all of the capital stock of certain domestic subsidiaries and 65% of the
voting stock of certain of our foreign subsidiaries.
We used the borrowings under the new credit facility, together with the
proceeds from the issuance of our 9% Senior Subordinated Notes, to repay in full
the existing credit facility and the existing Cinema Properties Facility.
Borrowings under the revolving credit line bear interest, at our option,
at: (A) a margin of 2.00% per annum plus a "base rate" equal to the higher of
(i) the prime lending rate as set forth on the British Banking Association
Telerate page 5 or (ii) the federal funds effective rate from time to time plus
0.50%, or (B) a "eurodollar rate" equal to the rate at which eurodollar deposits
are offered in the interbank eurodollar market for terms of one, two, three or
six, or (if available to all lenders in their sole discretion) nine or twelve
months, as selected by us, plus a margin of 3.00% per annum. The margin
applicable to base rate loans ranges from 1.25% per annum to 2.00% per annum and
the margin applicable to eurodollar rate loans ranges from 2.25% per annum to
3.00% per annum based upon our achieving certain ratios of debt to consolidated
EBITDA (as defined in the new credit facility).
The term loan bears interest, at our option, at (A) the base rate plus a
margin of 1.75% or (B) the eurodollar rate plus a margin of 2.75%.
The term of the revolving credit line is five years. The term loan
matures on March 31, 2008, or March 31, 2009, if the maturity of our existing
senior subordinated debt due on August 2008 is extended beyond September 30,
2009.
Under the new credit facility, we are required to maintain specified
levels of fixed charge coverage and set limitations on our leverage ratios. We
are limited in our ability to pay dividends and in our ability to incur
additional indebtedness and liens and, following the issuance of certain types
of indebtedness or the disposition of assets, subject to certain exceptions, we
would be required to apply certain of the proceeds to repay amounts outstanding
under the credit facility. The new credit facility also contains certain other
covenants and restrictions customary in credit agreements of this kind.
As of March 31, 2003, we had $125 million outstanding under the term
loan and the effective interest rate on such borrowing was 4.0% per annum. As of
March 31, 2003, we had $30 million outstanding under the revolving credit line
and the effective interest rate on such borrowings was 4.3% per annum.
28
Cinemark USA Revolving Credit Facility
In February 1998, we entered into a reducing revolving credit facility
with a group of banks for which Bank of America, N.A. acts as administrative
agent. The credit facility provided for an initial commitment of $350 million
which was automatically reduced each quarter by 2.5%, 3.75%, 5.0%, 6.25% and
6.25% of the aggregate $350 million in 2001, 2002, 2003, 2004 and 2005,
respectively, until maturity in 2006. As of December 31, 2002, the aggregate
commitment available to us was $262.5 million. Borrowings under the credit
facility are secured by a pledge of all of the stock of Cinemark USA, Inc. and
65% of the stock of our Mexican subsidiaries and by guarantees from material
subsidiaries. The credit facility required us to maintain certain financial
ratios; restricts the payment of dividends, payment of subordinated debt prior
to maturity and issuance of preferred stock and other indebtedness; and contains
other restrictive covenants typical for agreements of this type. Funds borrowed
pursuant to the credit facility bear interest at a rate per annum equal to the
Offshore Rate or the Base Rate, as the case may be, plus the Applicable Margin
(as defined in the credit facility). We prepaid a portion of the indebtedness
outstanding under the credit facility on February 11, 2003 with the net proceeds
of our new senior subordinated notes issuance. The credit facility was repaid in
full on February 14, 2003 from the net proceeds of our new senior secured credit
facility entered into with Lehman Commercial Paper, Inc. for itself and as
administrative agent for a syndicate of lenders.
Cinemark Mexico Revolving Credit Facility
In November 1998, Cinemark Mexico (USA), Inc. executed a credit
agreement with Bank of America National Trust and Savings Association (the
"Cinemark Mexico Credit Agreement"). The Cinemark Mexico Credit Agreement is a
revolving credit facility and provides for a loan to Cinemark Mexico of up to
$30 million in the aggregate. The Cinemark Mexico Credit Agreement is secured by
a pledge of 65% of the stock of Cinemark de Mexico, S.A. de C.V. and Cinemark
Holdings Mexico S. de R.L. de C.V. and an unconditional guarantee by us.
Pursuant to the terms of the Cinemark Mexico Credit Agreement, funds borrowed
bear interest at a rate per annum equal to the Offshore Rate or the Base Rate,
as the case may be, plus the Applicable Margin (as defined in the Cinemark
Mexico Credit Agreement). Cinemark Mexico was required to make principal
payments of $0.5 million in each of the third and fourth quarters of 2001, $1.5
million per quarter in 2002 with the remaining principal outstanding of $23
million due in January 2003. On January 15, 2003, the Cinemark Mexico Credit
Agreement was paid in full.
29
Cinema Properties Term Loan
In December 2000, Cinema Properties, Inc., a wholly owned subsidiary
that is not subject to restrictions imposed by the credit facility or the
indentures governing the senior subordinated notes, borrowed a $77 million
3-year term loan from Lehman Brothers Bank, FSB (the "Cinema Properties
Facility"), which originally matured on December 31, 2003. In 2002, the Cinema
Properties Facility was amended, which among other things, extended the maturity
date one year to December 31, 2004 and eliminated the lender's discretionary
right to require Cinema Properties, Inc. to make $1.5 million principal payments
in the third and fourth quarters of 2002. Cinema Properties, Inc. has the
unilateral ability to further extend the maturity date two times for one year
each by paying extension fees of 1.5% and 3.0% of the outstanding borrowing,
respectively, if certain interest coverage ratios are met and no event of
default has occurred and is continuing. Funds borrowed pursuant to the Cinema
Properties Facility bear interest at a rate per annum equal to LIBOR plus 5.75%.
Borrowings are secured by, among other things, a mortgage placed on six of
Cinema Properties, Inc.'s theatres and certain equipment leases. The Cinema
Properties Facility requires Cinema Properties, Inc. to comply with certain
interest coverage ratios and contains other restrictive covenants typical for
agreements of this type. Cinema Properties, Inc. has a separate legal existence,
separate assets, separate creditors and separate financial statements from the
Company's other entities. The assets of Cinema Properties, Inc. are not
available to satisfy the debts of any of the Company's other consolidated
entities. Cinema Properties, Inc. also purchased from Lehman Brothers Derivative
Products Inc. an Interest Rate Cap Agreement with a notional amount equal to $77
million with a five year term and a strike rate equal to the excess of three
month LIBOR over the strike price of 6.58%. The Cinema Properties Facility was
repaid in full on February 14, 2003, from the net proceeds of our new senior
secured credit facility entered into with Lehman Commercial Paper, Inc. for
itself and as administrative agent for a syndicate of lenders. Simultaneously,
with such repayment Cinema Properties, Inc. and its shareholders were merged
with and into us.
Cinemark Brasil Notes Payable
Cinemark Brasil S.A. currently has four main types of funding sources
executed with local and international banks. These include:
(1) BNDES (Banco Nacional de Desenvolvimento Economico e Social (the
Brazilian National Development Bank)) credit line in the U.S. dollar equivalent
in Brazilian reais of US$3.3 million executed in October 1999 with a term of 5
years (with a nine month grace period) and accruing interest at a BNDES basket
rate, which is a multiple currency rate based on the rate at which the bank
borrows, plus a spread amounting to 14.5%;
(2) BNDES credit line in the U.S. dollar equivalent in Brazilian reais
of US$1.6 million executed in November 2001 with a term of 5 years (with a one
year grace period) and accruing interest at a BNDES basket rate plus a spread
amounting to 13.8%;
(3) Import financing executed with Banco ABC Brasil in 2002 in the
amount of US$440,000 with a term of 360 days and accruing interest at a rate of
7.5% per annum; and
(4) Project developer financing executed with two engineering companies
in September 2000 in the amount of US$1.8 million with a term of 5 years (with a
nine month grace period) and accruing interest at a rate of TJLP+5% (Taxa de
Juros de Longo Prazo (a long term interest rate published by the Brazilian
government)).
These sources are secured by a variety of instruments, including comfort
letters from Cinemark International, promissory notes for up to 130% of the
value, a revenue reserve account and equipment collateral. As of March 31, 2003,
an aggregate of $5.3 million was outstanding and the average effective interest
rate on such borrowings was 13.7% per annum.
30
Cinemark Chile Notes Payable
On March 26, 2002, Cinemark Chile S.A. entered into a Debt
Acknowledgment, Rescheduling and Joint Guarantee and Co-Debt Agreement with
Scotiabank Sud Americano and three local banks. Under this agreement, Cinemark
Chile S.A. borrowed the U.S. dollar equivalent of approximately $10.6 million in
Chilean pesos (adjusted for inflation pursuant to the Unidades de Fomento).
Cinemark Chile S.A. is required to make 24 equal quarterly installments of
principal plus accrued and unpaid interest, commencing March 27, 2002. The
indebtedness is secured by a first priority commercial pledge of the shares of
Cinemark Chile S.A., a chattel mortgage over Cinemark Chile's personal property
and by guarantees issued by Cinemark International, L.L.C. and Chile Films S.A.,
whose owners are shareholders of Cinemark Chile S.A. The agreement requires
Cinemark Chile S.A. to maintain certain financial ratios and contains other
restrictive covenants typical for agreements of this type such as a limitation
on dividends. Funds borrowed under this agreement bear interest at the 90 day
TAB Banking rate (360 day TAB Banking rate with respect to one of the four
banks) as published by the Association of Banks and Financial Institutions Act
plus 2%. As of March 31, 2003, $7.8 million was outstanding under this agreement
and the effective interest rate on such borrowing was 6.0% per annum.
Recent Developments
Tender Offer to Repurchase Senior Subordinated Notes
On April 18, 2003, Cinemark USA, Inc. announced that it has commenced a
tender offer to purchase for cash up to $240 million aggregate principal amount
of its outstanding $200 million 9 5/8% Series B Senior Subordinated Notes due
2008 and $75 million 9 5/8% Series D Subordinated Notes due 2008.
Add-on Senior Subordinated Notes Issuance
On May 7, 2003, we issued an additional $210 million of 9% Senior
Subordinated Notes due 2013 at a premium of 107.25% of the face amount to
qualified institutional buyers in reliance on Rule 144A of the Securities Act.
The new notes were offered as additional debt securities under an indenture
pursuant to which, on February 11, 2003, the Company issued $150 million of 9%
Senior Subordinated Notes 2013. Interest is payable on February 1 and August 1
of each year, beginning on August 1, 2003. The notes mature on February 1, 2013.
The net proceeds of this add-on issuance and additional borrowings under our
senior secured credit facility were utilized to fund the purchase of
approximately $233.0 million of bonds tendered as of midnight on May 15, 2003
pursuant to the April 18, 2003 tender offer.
Credit Ratings
In August 2000, Standard & Poor's lowered the rating on our three series
of senior subordinated notes due 2008 from B to B-, and in December 2000,
Moody's Investor Services lowered the rating on these notes from B2 to Caa2. In
August 2002, Standard & Poor's assigned a stable rating to us. In conjunction
with this rating, our corporate rating was assigned a B+ rating and our three
series of senior subordinated notes due 2008 were assigned a B- rating. On
January 31, 2003, Standard & Poor's revised its outlook on us from stable to
positive and assigned a BB- rating to our new senior secured credit facility and
a B- rating to the senior subordinated notes due 2013. On the same day, Moody's
Investor Services upgraded its rating on our three existing series of senior
subordinated notes due 2008 from Caa2 to B3 and assigned a Ba3 rating to our new
senior secured credit facility and a B3 rating to the senior subordinated notes
due 2013. On April 25, 2003, Standard & Poor's assigned a B- rating to the new
9% notes.
31
New Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement requires, among other things, that gains and losses
on the early extinguishment of debt be classified as extraordinary only if they
meet the criteria for extraordinary treatment set forth in Accounting Principles
Board Opinion No. 30. The provisions of this statement related to classification
of gains and losses on the early extinguishment of debt are effective for fiscal
years beginning after May 15, 2002. This statement became effective for us on
January 1, 2003. See note 12 for discussion of the debt retired during the three
month period ended March 31, 2003 in conjunction with Company's long-term debt
refinancing.
In November 2002, the Financial Accounting Standards Board issued
Interpretation Number 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, including Indirect Guarantees of Indebtedness of Others" ("FIN
45"). This interpretation elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The disclosure
requirements of FIN 45 are effective for interim and annual periods after
December 15, 2002. The initial recognition and initial measurement requirements
of FIN 45 are effective prospectively for guarantees issued or modified after
December 31, 2002. The adoption of this statement had no impact on the condensed
consolidated financial statements.
Seasonality
The Company's revenues have historically been seasonal, coinciding with
the timing of releases of motion pictures by the major distributors. Generally,
the most successful motion pictures have been released during the summer
extending from Memorial Day to Labor Day and during the holiday season extending
from Thanksgiving through year-end. The unexpected emergence of a hit film
during other periods can alter this seasonality trend. The timing of such film
releases can have a significant effect on the Company's 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.
Other Issues
This quarterly report on Form 10-Q includes "forward-looking statements"
based on our current expectations, assumptions, estimates and projections about
our and our subsidiaries' business and industry. We intend that this quarterly
report be governed by the "safe harbor" provision of the Private Securities
Litigation Reform Act of 1995 (the "PSLR Act") with respect to statements that
may be deemed to be forward-looking statements under the PSLR Act. They include
statements relating to:
o future revenues, expenses and profitability;
o the future development and expected growth of our business;
o projected capital expenditures;
o attendance at movies generally, or in any of the markets in which we
operate, the number or diversity of popular movies released or our
ability to successfully license and exhibit popular films;
o competition from other exhibitors; and
o determinations in lawsuits in which we are a defendant.
32
You can identify forward-looking statements by the use of words such as
"may," "should," "will," "could," "estimates," "predicts," "potential,"
"continue," "anticipates," "believes," "plans," "expects," "future" and
"intends" and similar expressions which are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors, some of which are beyond our
control and difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
In evaluating these forward-looking statements, you should carefully consider
the risks and uncertainties described in this report. These forward-looking
statements reflect our view only as of the date of this report. Actual results
could differ materially from those indicated by such forward-looking statements
due to a number of factors. All forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by this
cautionary statement. We undertake no current obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
33
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We have exposure to financial market risks, including changes in
interest rates, foreign currency exchange rates and other relevant market
prices.
Interest Rate Risk
An increase or decrease in interest rates would affect interest costs
relating to our variable rate debt facilities. We and our subsidiaries are
currently parties to such variable rate debt facilities. At March 31, 2003,
there was an aggregate of $173.7 million of variable rate debt outstanding under
these facilities. These facilities represent approximately 25% of our
outstanding long-term debt. Based on the interest rate levels in effect on the
variable rate debt outstanding at March 31, 2003, a 10% increase in these rates
would not increase our annual interest expense by a material amount. Changes in
interest rates do not have a direct impact on interest expense relating to the
remaining fixed rate debt facilities.
The table below provides information about the Company's fixed rate and
variable rate long-term debt agreements:
Expected Maturity Date
As of March 31, 2003
--------------------
March 31, March 31, March 31, March 31, March 31, Fair
(in millions) 2004 2005 2006 2007 2008 Thereafter Total Value
- ------------- ---- ---- ---- ---- ---- ---------- ----- -----
Long-term debt:
Fixed rate $0.1 $ - $ - $0.1 $ - $530.2 $530.4 $545.1
Average interest rate 9.2%
Variable rate $5.9 $5.7 $7.1 $3.6 $151.4 $ - $173.7 $175.2
Average interest rate 4.4%
Total debt $6.0 $5.7 $7.1 $3.7 $151.4 $530.2 $704.1 $720.3
Expected Maturity Date
As of December 31, 2002
-----------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Fair
(in millions) 2003 2004 2005 2006 2007 Thereafter Total Value
- ------------- ---- ---- ---- ---- ---- ---------- ----- -----
Long-term debt:
Fixed rate $0.1 $ - $0.1 $ - $ - $380.2 $380.4 $393.8
Average interest rate 9.3%
Variable rate $30.1 $165.6 $94.6 $19.9 $2.0 $ - $312.2 $324.1
Average interest rate 4.4%
Total debt $30.2 $165.6 $94.7 $19.9 $2.0 $380.2 $692.6 $717.9
34
In December 2000, Cinema Properties, Inc., a wholly-owned subsidiary of
the Company, entered into the Cinema Properties Facility. Pursuant to the terms
of the Cinema Properties Facility, funds borrowed bear interest at a rate per
annum equal to LIBOR (as defined in the Cinema Properties Facility) plus 5.75%.
As part of the Cinema Properties Facility, in order to hedge against future
changes in interest rates, Cinema Properties, Inc. purchased from Lehman
Brothers Derivative Products Inc. an Interest Rate Cap Agreement with a notional
amount equal to $77 million with a five year term and a strike rate equal to the
excess of three month LIBOR over the strike price of 6.58%. Three month LIBOR as
of the date of closing was 6.58%. At March 31, 2003 and December 31, 2002, the
interest rate cap agreement is recorded at its fair value of $0.1 million. We do
not have any additional derivative financial instruments in place as of March
31, 2003 that would have a material effect on our financial position, results of
operations and cash flows.
Foreign Currency Exchange Rate Risk
We are also exposed to market risk arising from changes in foreign
currency exchange rates as a result of our international operations. Generally
accepted accounting principles in the U.S. require that our subsidiaries use the
currency of the primary economic environment in which they operate as their
functional currency. If our subsidiaries operate in a highly inflationary
economy, generally accepted accounting principles in the U.S. require that the
U.S. dollar be used as the functional currency for the subsidiary. Currency
fluctuations result in us reporting exchange gains (losses) or foreign currency
translation adjustments relating to our international subsidiaries depending on
the inflationary environment of the country in which we operate. Based upon our
equity ownership in our international subsidiaries as of March 31, 2003, holding
everything else constant, a 10% immediate unfavorable change in each of the
foreign currency exchange rates to which we are exposed would decrease the net
fair value of our investments in our international subsidiaries by approximately
$5 million.
Item 4. Controls and Procedures
We have established a system of controls and other procedures designed
to ensure that information required to be disclosed in its periodic reports
filed under the Securities Exchange Act of 1934 (the "Exchange Act"), as
amended, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. These
disclosure controls and procedures have been evaluated under the direction of
our Chief Executive Officer and Chief Financial Officer within the last 90 days.
Based on such evaluations, the Chief Executive Officer and Chief Financial
Officer have concluded that the disclosure controls and procedures are effective
in alerting them in a timely basis to material information relating to the
Company and its consolidated subsidiaries required to be included in our reports
filed or submitted under the Exchange Act.
There have been no significant changes in our system of internal
controls or in other factors that could significantly affect internal controls
subsequent to the evaluation by the Chief Executive Officer and Chief Financial
Officer.
35
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2002.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
There have not been any matters submitted to a vote of security holders
during the first three months of 2003 through the solicitation of proxies or
otherwise.
Item 5. Other Information
The Company intends that this report be governed by the "safe harbor"
provision of the Private Securities Litigation Reform Act of 1995 (the "PSLR
Act") with respect to statements that may be deemed to be forward-looking
statements under the PSLR Act. Such forward-looking statements may include, but
are not limited to, the Company and any of its subsidiaries' long-term theatre
strategy. Actual results could differ materially from those indicated by such
forward-looking statements due to a number of factors.
Item 6. Exhibits and Reports on Form 8-K
a) Certifications under Exchange Act Rules 13a-14 or 15d-14
Certification of the Chief Executive Officer of Cinemark USA, Inc.
Certification of the Chief Financial Officer of Cinemark USA, Inc.
b) Supplemental schedules specified by the Senior Subordinated Notes
Indenture:
Condensed Consolidating Balance Sheets
(unaudited) as of March 31, 2003
Condensed Consolidating Statements of
Operations (unaudited) for the three months
ended March 31, 2003
Condensed Consolidating Statements of
Cash Flows (unaudited) for the three months
ended March 31, 2003
c) Exhibits
*99.1 Certification of the Chief Executive Officer of Cinemark
USA, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
*99.2 Certification of the Chief Financial Officer of Cinemark
USA, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
36
d) Reports on Form 8-K
Reports on Form 8-K were filed by the Company on January 30, 2003,
April 18, 2003 and April 24, 2003.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CINEMARK USA, INC.
Registrant
DATE: May 20, 2003
/s/Alan W. Stock
Alan W. Stock
President
/s/Robert Copple
Robert Copple
Chief Financial Officer
38
CERTIFICATION UNDER
EXCHANGE ACT RULES 13a-14 OR 15d-14
CERTIFICATION
I, Lee Roy Mitchell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cinemark USA,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
39
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 20, 2003
CINEMARK USA, INC.
By: /s/Lee Roy Mitchell
Lee Roy Mitchell
Chief Executive Officer
40
CERTIFICATION UNDER
EXCHANGE ACT RULES 13a-14 OR 15d-14
CERTIFICATION
I, Robert Copple, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cinemark USA,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
41
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 20, 2003
CINEMARK USA, INC.
By: /s/Robert Copple
Robert Copple
Chief Financial Officer
42
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2003
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- -------------- -------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,969,909 $ 22,678,665 $ - $ 42,648,574
Inventories 3,187,789 501,643 - 3,689,432
Accounts receivable (19,851,809) 31,447,827 (219,102) 11,376,916
Income tax receivable (532,379) 2,480,443 - 1,948,064
Prepaid expenses and other 3,928,430 597,013 - 4,525,443
-----------------------------------------------------------------
Total current assets 6,701,940 57,705,591 (219,102) 64,188,429
THEATRE PROPERTIES AND EQUIPMENT - net 718,626,129 65,668,096 - 784,294,225
OTHER ASSETS
Goodwill 8,110,964 2,644,347 - 10,755,311
Investments in and advances to affiliates 167,444,443 1,130,561 (165,646,845) 2,928,159
Deferred charges and other - net 32,776,164 3,983,384 - 36,759,548
-----------------------------------------------------------------
Total other assets 208,331,571 7,758,292 (165,646,845) 50,443,018
-----------------------------------------------------------------
TOTAL ASSETS $ 933,659,640 $ 131,131,979 $(165,865,947) $ 898,925,672
=================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,490,872 $ 4,511,132 $ - $ 6,002,004
Current income taxes payable (482,653) 482,653 - -
Accounts payable and accrued expenses 72,059,490 12,116,143 (207,802) 83,967,831
-----------------------------------------------------------------
Total current liabilities 73,067,709 17,109,928 (207,802) 89,969,835
LONG TERM LIABILITIES
Senior credit agreements 157,154,372 10,791,035 - 167,945,407
Senior subordinated notes 530,152,040 - - 530,152,040
Deferred lease expenses 24,809,545 407,414 - 25,216,959
Deferred gain on sale leasebacks 4,281,140 - - 4,281,140
Deferred income taxes 14,500,396 489,749 - 14,990,145
Deferred revenues and other long-term liabilities 1,860,968 2,072,334 - 3,933,302
-----------------------------------------------------------------
Total long term liabilities 732,758,461 13,760,532 - 746,518,993
MINORITY INTERESTS IN SUBSIDIARIES 8,327,897 19,770,770 - 28,098,667
SHAREHOLDER'S EQUITY
Class A common stock, $.01 par value: 10,000,000 shares
authorized, 1,500 shares issued and outstanding 15 - - 15
Class B common stock, no par value: 1,000,000 shares
authorized, 239,893 shares issued and outstanding 49,543,427 14,958,000 (14,958,000) 49,543,427
Additional paid-in-capital 12,249,157 150,700,145 (150,700,145) 12,249,157
Retained earnings 131,936,700 (46,210,451) - 85,726,249
Treasury stock, 57,245 Class B shares at cost (24,232,890) - - (24,232,890)
Accumulated other comprehensive loss (49,990,836) (38,956,945) - (88,947,781)
-----------------------------------------------------------------
Total shareholder's equity 119,505,573 80,490,749 (165,658,145) 34,338,177
-----------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 933,659,640 $ 131,131,979 $(165,865,947) $ 898,925,672
=================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indentures for the Senior Subordinated Notes.
43
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- -------------- -------------- --------------
REVENUES $ 173,087,943 $ 32,406,891 $ (1,493,075) $ 204,001,759
COSTS AND EXPENSES
Cost of operations 130,455,032 25,103,830 (1,493,075) 154,065,787
General and administrative expenses 7,700,775 1,889,039 - 9,589,814
Depreciation and amortization 13,311,517 2,825,397 - 16,136,914
(Gain) loss on sale of assets and other (617,056) 627 - (616,429)
-----------------------------------------------------------------
Total costs and expenses 150,850,268 29,818,893 (1,493,075) 179,176,086
-----------------------------------------------------------------
OPERATING INCOME 22,237,675 2,587,998 - 24,825,673
OTHER INCOME (EXPENSE)
Interest expense (12,232,782) (1,062,826) - (13,295,608)
Amortization of debt issue cost (375,217) (208,403) - (583,620)
Interest income 249,354 409,275 - 658,629
Foreign currency exchange gain (loss) (213,886) 230,017 - 16,131
Loss on early retirement of debt (320,393) (1,325,366) - (1,645,759)
Equity in income of affiliates 68,022 128,334 - 196,356
Minority interests in income of subsidiaries (228,467) (541,738) - (770,205)
-----------------------------------------------------------------
Total other expenses (13,053,369) (2,370,707) - (15,424,076)
-----------------------------------------------------------------
INCOME BEFORE INCOME TAXES 9,184,306 217,291 - 9,401,597
Income taxes 3,650,657 298,014 - 3,948,671
-----------------------------------------------------------------
NET INCOME (LOSS) $ 5,533,649 $ (80,723) $ - $ 5,452,926
=================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indentures for the Senior Subordinated Notes.
44
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- -------------- -------------- --------------
OPERATING ACTIVITIES
Net income (loss) $ 5,533,649 $ (80,723) $ - $ 5,452,926
Noncash items in net income (loss):
Depreciation 13,178,252 2,804,024 - 15,982,276
Amortization of other assets 133,265 21,373 - 154,638
Amortization of foreign advanced rents 258,325 165,282 - 423,607
Amortized compensation - stock options 274,297 - - 274,297
Amortization of debt issue costs 375,217 208,403 - 583,620
Amortization of gain on sale leasebacks (91,480) - - (91,480)
Amortization of debt discount and premium (7,127) - - (7,127)
Amortization of deferred revenues (1,168,226) - - (1,168,226)
(Gain) loss on sale of assets and other (617,056) 627 - (616,429)
Loss on early retirement of debt 320,393 1,325,366 - 1,645,759
Deferred lease expenses 387,211 (7,709) - 379,502
Deferred income tax expenses 4,007,092 (187,075) - 3,820,017
Equity in income of affiliates (68,022) (128,334) - (196,356)
Minority interests in income of subsidiaries 228,467 541,738 - 770,205
Cash used for operating working capital (12,864,137) (30,195,768) - (43,059,905)
-----------------------------------------------------------------
Net cash provided by (used for) operating activities 9,880,120 (25,532,796) - (15,652,676)
INVESTING ACTIVITIES
Additions to theatre properties and equipment (7,779,385) (823,889) - (8,603,274)
Sale of theatre properties and equipment 1,488,175 2,399 - 1,490,574
Transfer of theatre properties and equipment (93,106,945) 93,106,945 - -
Investment in affiliates (3,314) - - (3,314)
-----------------------------------------------------------------
Net cash provided by (used for) investing activities (99,401,469) 92,285,455 - (7,116,014)
FINANCING ACTIVITIES
Issuance of senior subordinated notes 150,000,000 - - 150,000,000
Increase in long term debt 226,004,596 - - 226,004,596
Decrease in long term debt (284,075,520) (80,285,665) - (364,361,185)
Increase in debt issue cost (10,712,267) - - (10,712,267)
Increase in minority investment in subsidiaries 10,603 883,751 - 894,354
Decrease in minority investment in subsidiaries (117,296) (163,525) - (280,821)
-----------------------------------------------------------------
Net cash provided by (used for) financing activities 81,110,116 (79,565,439) - 1,544,677
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (104,367) 258,439 - 154,072
-----------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (8,515,600) (12,554,341) - (21,069,941)
CASH AND CASH EQUIVALENTS:
Beginning of period 28,485,509 35,233,006 - 63,718,515
-----------------------------------------------------------------
End of period $ 19,969,909 $ 22,678,665 $ - $ 42,648,574
=================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indentures for the Senior Subordinated Notes.
45
Exhibit 99.1
Certification of
Chief Executive Officer
of
Cinemark USA, Inc.
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for
the quarter ended March 31, 2003 of Cinemark USA, Inc. (the "Issuer").
I, Lee Roy Mitchell, the Chief Executive Officer of Issuer certify that to the
best of my knowledge:
(i) the Form 10-Q fully complies with the requirements of section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m(a) or 78o(d)); and
(ii) the information contained in the Form 10-Q fairly presents, in all
material respects, the financial condition and results of
operations of the Issuer.
Dated: May 20, 2003.
/s/Lee Roy Mitchell
Name: Lee Roy Mitchell
Subscribed and sworn to before me
this 20th day of May 2003.
/s/Carol Waldman
Name: Carol Waldman
Title: Notary Public
My commission expires: 06/07/04
Exhibit 99.2
Certification of
Chief Financial Officer
of
Cinemark USA, Inc.
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for
the quarter ended March 31, 2003 of Cinemark USA, Inc. (the "Issuer").
I, Robert Copple, the Chief Financial Officer of Issuer certify that to the best
of my knowledge:
(i) the Form 10-Q fully complies with the requirements of section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m(a) or 78o(d)); and
(ii) the information contained in the Form 10-Q fairly presents, in all
material respects, the financial condition and results of
operations of the Issuer.
Dated: May 20, 2003.
/s/Robert Copple
Name: Robert Copple
Subscribed and sworn to before me
this 20th day of May 2003.
/s/Carol Waldman
Name: Carol Waldman
Title: Notary Public
My commission expires: 06/07/04