UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
Commission File Number: 033-47040
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 November 13, 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
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2003
(unaudited) and December 31, 2002 3
Condensed Consolidated Statements of Operations (unaudited) for
the three and nine months ended September 30, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows (unaudited) for
the nine months ended September 30, 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 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
Item 4. Controls and Procedures 31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 35
SIGNATURES 37
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2003 2002
(Unaudited)
---------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 50,854,484 $ 63,718,515
Inventories 3,805,717 3,688,915
Accounts receivable 14,564,014 12,441,849
Income tax receivable - 715,931
Prepaid expenses and other 6,290,574 4,094,135
---------------------------------
Total current assets 75,514,789 84,659,345
THEATRE PROPERTIES AND EQUIPMENT 1,212,633,903 1,177,508,981
Less accumulated depreciation and amortization (442,264,093) (385,778,478)
---------------------------------
Theatre properties and equipment - net 770,369,810 791,730,503
OTHER ASSETS
Goodwill 10,997,693 10,751,844
Investments in and advances to affiliates 3,020,842 3,040,940
Deferred charges and other - net 38,174,699 26,631,296
---------------------------------
Total other assets 52,193,234 40,424,080
---------------------------------
TOTAL ASSETS $ 898,077,833 $ 916,813,928
=================================
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 6,485,169 $ 30,190,449
Current income taxes payable 6,219,532 -
Accounts payable and accrued expenses 89,064,493 124,237,312
---------------------------------
Total current liabilities 101,769,194 154,427,761
LONG-TERM LIABILITIES
Senior credit agreements 174,164,042 282,237,221
Senior subordinated notes 479,115,982 380,159,167
Deferred lease expenses 27,043,779 24,837,457
Deferred gain on sale leasebacks 4,098,180 4,372,620
Deferred income taxes 17,199,351 11,170,128
Deferred revenues and other long-term liabilities 2,706,953 5,129,370
---------------------------------
Total long-term liabilities 704,328,287 707,905,963
MINORITY INTERESTS IN SUBSIDIARIES 32,437,388 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 12,796,688 11,974,860
Retained earnings 108,737,302 80,273,323
Treasury stock, 57,245 Class B shares at cost (24,232,890) (24,232,890)
Accumulated other comprehensive loss (87,301,578) (89,793,460)
---------------------------------
Total shareholder's equity 59,542,964 27,765,275
---------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 898,077,833 $ 916,813,928
=================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2003 2002 2003 2002
-------------------------------- --------------------------------
REVENUES
Admissions $ 158,273,870 $ 147,393,762 $ 444,250,437 $ 455,200,470
Concession 80,815,082 72,456,441 224,527,027 221,827,261
Other 13,497,946 12,536,251 36,788,764 35,510,166
-------------------------------- --------------------------------
Total revenues 252,586,898 232,386,454 705,566,228 712,537,897
COSTS AND EXPENSES
Cost of operations:
Film rentals and advertising 85,201,819 77,488,441 241,199,676 244,106,792
Concession supplies 14,495,598 13,318,849 37,206,025 39,076,003
Salaries and wages 25,760,466 25,305,699 73,061,647 73,833,703
Facility lease expense 31,471,463 29,153,620 89,924,386 87,429,023
Utilities and other 29,395,351 25,215,186 83,117,033 78,344,938
-------------------------------- --------------------------------
Total cost of operations 186,324,697 170,481,795 524,508,767 522,790,459
General and administrative expenses 11,347,231 9,717,217 31,548,454 32,175,796
Depreciation and amortization 16,678,190 16,574,582 49,513,672 50,587,100
Asset impairment loss 2,500,000 - 4,560,845 781,776
(Gain) loss on sale of assets and other 232,497 (86,891) (758,522) 726,033
-------------------------------- --------------------------------
Total costs and expenses 217,082,615 196,686,703 609,373,216 607,061,164
OPERATING INCOME 35,504,283 35,699,751 96,193,012 105,476,733
OTHER INCOME (EXPENSE)
Interest expense (12,568,963) (13,466,639) (40,083,290) (42,360,689)
Amortization of debt issue cost (564,361) (591,170) (1,735,311) (1,773,510)
Interest income 512,629 721,070 1,595,993 1,719,125
Foreign currency exchange gain (loss) (12,295) (3,864,034) 138,904 (6,185,798)
Loss on early retirement of debt (270,133) - (7,528,269) -
Equity in income of affiliates 422,723 340,079 572,247 553,087
Minority interests in (income) loss of subsidiaries (614,921) 741,351 (2,891,406) 5,625
-------------------------------- --------------------------------
Total other expenses (13,095,321) (16,119,343) (49,931,132) (48,042,160)
-------------------------------- --------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF AN ACCOUNTING CHANGE 22,408,962 19,580,408 46,261,880 57,434,573
Income taxes 7,780,003 9,244,432 17,797,901 22,808,493
-------------------------------- --------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF AN ACCOUNTING CHANGE 14,628,959 10,335,976 28,463,979 34,626,080
Cumulative effect of a change in accounting principle, net
of income tax benefit of $0. - - - (3,389,779)
-------------------------------- --------------------------------
NET INCOME $ 14,628,959 $ 10,335,976 $ 28,463,979 $ 31,236,301
================================ ================================
EARNINGS PER SHARE-Basic/Diluted
Income before accounting change $ 79.44 $ 56.13 $ 154.57 $ 188.03
Cumulative effect of an accounting change - - - (18.40)
-------------------------------- --------------------------------
Net income $ 79.44 $ 56.13 $ 154.57 $ 169.63
================================ ================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2003 2002
---------------------------------
OPERATING ACTIVITIES
Net income $ 28,463,979 $ 31,236,301
Noncash items in net income:
Depreciation 49,022,691 50,012,000
Amortization of other assets 490,981 575,100
Amortization of foreign advanced rents 1,353,245 1,384,512
Amortized compensation - stock options 821,828 828,856
Amortization of debt issue costs 1,735,311 1,773,510
Amortization of gain on sale leasebacks (274,440) (274,440)
Amortization of debt discount and premium (606,253) (21,380)
Amortization of deferred revenues (2,318,011) (3,639,678)
Loss on impairment of assets 4,560,845 781,776
(Gain) loss on sale of assets and other (758,522) 726,033
Loss on early retirement of debt 7,528,269 -
Deferred lease expenses 2,206,322 1,503,802
Deferred income tax expenses 6,029,223 12,548,414
Equity in income of affiliates (572,247) (553,087)
Minority interests in income (loss) of subsidiaries 2,891,406 (5,625)
Cumulative effect of an accounting change - 3,389,779
Cash provided by (used for) operating working capital:
Inventories (116,802) 180,875
Accounts receivable (2,122,165) 994,349
Prepaid expenses and other (2,196,439) (601,001)
Other assets (7,960,669) 3,073,102
Advances with affiliates 295,194 232,582
Accounts payable and accrued expenses (39,012,252) (22,654,323)
Other long-term liabilities (104,406) (309,232)
Income tax receivable/payable 6,935,463 (632,273)
---------------------------------
Net cash provided by operating activities 56,292,551 80,549,952
INVESTING ACTIVITIES
Additions to theatre properties and equipment (27,569,807) (17,144,549)
Sale of theatre properties and equipment 2,303,440 1,725,279
Investment in affiliates (3,314) -
Dividends/capital returned from affiliates 300,465 594,340
---------------------------------
Net cash used for investing activities (24,969,216) (14,824,930)
FINANCING ACTIVITIES
Issuance of senior subordinated notes 375,225,000 -
Retirement of senior subordinated notes (275,000,000) -
Increase in long-term debt 403,512,451 44,745,196
Decrease in long-term debt (536,218,329) (90,984,320)
Increase in debt issue cost (15,598,321) -
Increase in minority investment in subsidiaries 3,473,150 421,855
Decrease in minority investment in subsidiaries (642,097) (10,902,187)
---------------------------------
Net cash used for financing activities (45,248,146) (56,719,456)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 1,060,780 (6,411,626)
---------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,864,031) 2,593,940
CASH AND CASH EQUIVALENTS:
Beginning of period 63,718,515 50,199,223
---------------------------------
End of period $ 50,854,484 $ 52,793,163
=================================
The accompanying notes are an integral part of the condensed 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
the number 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
provides management services for additional theatres in the U.S. and Taiwan at
September 30, 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 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 condensed consolidated 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 condensed consolidated 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 and nine month periods ended September 30, 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 Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2003 2002 2003 2002
---- ---- ---- ----
Income before accounting change $ 14,628,959 $ 10,335,976 $ 28,463,979 $ 34,626,080
----------------------------- -----------------------------
Basic:
Weighted average common shares outstanding 184,148 184,148 184,148 184,148
----------------------------- -----------------------------
Income before accounting change per common
share $ 79.44 $ 56.13 $ 154.57 $ 188.03
============================= =============================
Diluted:
Weighted average common shares outstanding 184,148 184,148 184,148 184,148
Net effect of potentially dilutive shares - - - -
----------------------------- -----------------------------
Weighted average common and common
equivalent shares outstanding 184,148 184,148 184,148 184,148
----------------------------- -----------------------------
Income before accounting change per common
and common equivalent share $ 79.44 $ 56.13 $ 154.57 $ 188.03
============================= =============================
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 potentially dilutive common stock
outstanding using the treasury stock method.
6
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 Cinemark USA, Inc. was
exchanged for shares and options to purchase shares, respectively, of common
stock of Cinemark, Inc. (the "Share Exchange"). As a result of the Share
Exchange, the Company no longer has any options outstanding under existing stock
option plans and its weighted average common and common equivalent shares
outstanding for the three and nine month periods ended September 30, 2003 and
2002 do not include options to purchase shares of Cinemark, Inc.'s common stock.
3. Stock Option Accounting
As a result of the Share Exchange, 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 reflected in the Company's condensed
consolidated statements of operations.
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for 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
pro-forma amounts indicated below:
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income as reported $ 14,628,959 $ 10,335,976 $ 28,463,979 $ 31,236,301
Compensation expense included in
reported net income, net of tax 273,233 274,298 821,828 828,856
Compensation expense under fair value
method, net of tax (338,351) (339,416) (1,017,180) (1,024,211)
----------------------------- -----------------------------
Pro-forma net income $ 14,563,841 $ 10,270,858 $ 28,268,627 $ 31,040,946
============================= =============================
Basic earnings per share:
As reported $ 79.44 $ 56.13 $ 154.57 $ 169.63
Pro-forma $ 79.09 $ 55.78 $ 153.51 $ 168.57
Diluted earnings per share:
As reported $ 79.44 $ 56.13 $ 154.57 $ 169.63
Pro-forma $ 79.09 $ 55.78 $ 153.51 $ 168.57
No stock options were granted during 2002 or during the nine month
period ended September 30, 2003. The fair value of each option grant is
estimated on the date of grant using the multiple option approach of the
Black-Scholes option pricing model with the following assumptions: 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.
4. Goodwill and Other Intangible Assets
The Company adopted SFAS No. 142, "Goodwill and Other Intangible
Assets," effective January 1, 2002 and as such, the Company's goodwill and other
intangible assets that 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 nine
month period ended September 30, 2002.
7
During the nine month period ended September 30, 2002, the Company
recorded additional goodwill impairment of $558,398 due to a write-down to fair
value of goodwill associated with the Company's Argentine operations. The
impairment charge is reported as a component of asset impairment loss on the
condensed consolidated statement of 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 September 30, 2003 and December
31, 2002 were as follows:
September 30, December 31,
2003 2002
---- ----
Amortized Other Intangible Assets:
Capitalized licensing fees $ 9,000,000 $ 9,000,000
Other intangible assets 516,277 72,403
Less - accumulated amortization (1,534,682) (1,139,070)
--------------------------------
Net other intangible assets $ 7,981,595 $ 7,933,333
================================
Unamortized Goodwill and Other Intangible Assets:
Goodwill $ 10,997,693 $ 10,751,844
Other intangible assets 16,163 16,163
--------------------------------
$ 11,013,856 $ 10,768,007
================================
Aggregate amortization expense for the nine month period ended September
30, 2003 of $490,981 consists of $395,612 of amortization of other intangible
assets and $95,369 of amortization of other assets. Estimated aggregate future
amortization expense for other intangible assets is as follows:
For the twelve month period ended September 30, 2004 $ 527,018
For the twelve month period ended September 30, 2005 527,018
For the twelve month period ended September 30, 2006 527,018
For the twelve month period ended September 30, 2007 527,018
For the twelve month period ended September 30, 2008 527,018
Thereafter 5,346,505
-------------
Total $ 7,981,595
=============
5. Long-Lived Assets
In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the Company reviews long-lived assets, including
goodwill, for impairment on a quarterly basis or whenever events or changes in
circumstances indicate the carrying amount of the assets may not be fully
recoverable. The Company's approach to its evaluation for impairment is
discussed in the Critical Accounting Policies section of the Company's 2002
Annual Report filed March 19, 2003 on Form 10-K.
During the nine month period ended September 30, 2003, the Company
wrote-down long-lived assets of certain properties to their fair values, which
resulted in asset impairment charges of $4.6 million. The charges recorded
included a $2.5 million write-down of one theatre in the United Kingdom, a $1.3
million write-down of one theatre in Mexico and a $0.8 million write-down of one
theatre in the U.S. During the nine month period ended September 30, 2002, the
Company recorded asset impairment charges of $0.8 million which included a $0.6
million write-down of goodwill associated with the Company's Argentine
operations and a $0.2 million write-down of one theatre in El Salvador.
6. Foreign Currency Translation
The accumulated other comprehensive loss account included in
shareholder's equity of $87,301,578 and $89,793,460 at September 30, 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.
8
For 2002 and 2003, all foreign countries in which the Company had
operations, including Argentina, Brazil and Mexico were deemed non-highly
inflationary. Thus, the Company records a foreign currency translation
adjustment to the accumulated other comprehensive loss account as an increase or
reduction to shareholder's equity for any fluctuation in foreign currencies.
On September 30, 2003, the exchange rate for the Argentine peso was 2.9
pesos to the U.S. dollar (the exchange rate was 3.4 pesos to the U.S. dollar at
December 31, 2002). The translation of the September 30, 2003 Argentine
financial statements into U.S. dollars resulted in a foreign currency
translation adjustment to the accumulated other comprehensive loss account as an
increase to shareholder's equity of approximately $2 million at September 30,
2003. At September 30, 2003, total assets of Cinemark Argentina, S.A. were
approximately U.S. $16 million.
On September 30, 2003, the exchange rate for the Brazilian real was 2.9
reais to the U.S. dollar (the exchange rate was 3.5 reais to the U.S. dollar at
December 31, 2002). The translation of the September 30, 2003 Brazilian
financial statements into U.S. dollars resulted in a foreign currency
translation adjustment to the accumulated other comprehensive loss account as an
increase to shareholder's equity of approximately $4 million at September 30,
2003. At September 30, 2003, total assets of Cinemark Brasil S.A. were
approximately U.S. $59 million.
On September 30, 2003, the exchange rate for the Mexican peso was 11.0
pesos to the U.S. dollar (the exchange rate was 10.4 pesos to the U.S. dollar at
December 31, 2002). The translation of the September 30, 2003 Mexican financial
statements into U.S. dollars resulted in a foreign currency translation
adjustment to the accumulated other comprehensive loss account as a decrease to
shareholder's equity of approximately $5 million at September 30, 2003. At
September 30, 2003, total assets of Cinemark de Mexico, S.A. de C.V. were
approximately U.S. $82 million.
7. Comprehensive Income (Loss)
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for the 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 Nine Months Ended
September 30, September 30,
----------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income $ 14,628,959 $ 10,335,976 $ 28,463,979 $ 31,236,301
Foreign currency translation
adjustment (5,221,987) (8,492,818) 2,491,882 (35,089,842)
----------------------------------------------------------------
Comprehensive income (loss) $ 9,406,972 $ 1,843,158 $ 30,955,861 $ (3,853,541)
================================================================
8. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed
consolidated statements of cash flows:
Nine Months Ended
September 30,
----------------------------
2003 2002
---- ----
Cash paid for interest $ 53,471,647 $ 50,173,593
Cash paid for income taxes (net of refunds) 4,665,136 10,966,070
9. 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 which were subsequently registered under the Securities Act of 1933.
Interest is payable on February 1 and August 1 of each year, beginning 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 then existing Credit Facility.
9
On February 14, 2003, the Company entered into a new senior secured
credit facility consisting of a $75 million five-year 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 net proceeds from the
senior secured credit facility were used to repay, in full, the then existing
Credit Facility and the Cinema Properties Facility. The term loan matures on
March 31, 2008, but will be extended to March 31, 2009 if, on or prior to May
31, 2007, the maturity of the Company's existing senior subordinated debt is
extended beyond September 30, 2009.
On May 7, 2003, the Company issued an additional $210 million principal
amount of 9% Senior Subordinated Notes at a premium of 107.25% of the principal
amount to qualified institutional buyers in reliance on Rule 144A which were
subsequently registered under the Securities Act of 1933. The new notes were
offered as additional debt securities under the indenture pursuant to which, on
February 11, 2003, the Company issued $150 million principal amount of 9% Senior
Subordinated Notes. Interest is payable on February 1 and August 1 of each year,
beginning August 1, 2003. The notes mature on February 1, 2013. The net proceeds
of this add-on issuance of $226.7 million, which included a premium of $15.2
million, and additional borrowings under the Company's senior secured credit
facility were utilized to fund the purchase on May 16, 2003 of approximately
$233 million principal amount of outstanding 9 5/8% Senior Subordinated Notes
tendered as of midnight on May 15, 2003 pursuant to a tender offer announced on
April 18, 2003.
On August 18, 2003, the Company amended the senior secured credit
facility with Lehman Commercial Paper, Inc. for itself and as administrative
agent for a syndicate of lenders, to provide a $165 million term loan expiring
on March 31, 2008 subject to the extensions noted above as permitted by the
senior secured credit facility. The net proceeds of the $165 million term loan
and additional borrowings under the $75 million five-year revolving credit line
were used to (i) repay $124.7 million of term loans outstanding under the
Company's senior secured credit facility entered into February 14, 2003, and
(ii) redeem the remaining $42 million principal amount of the Company's
outstanding 9 5/8% Senior Subordinated Notes on September 18, 2003.
Under the amended term loan, principal payments of $412,500 are due each
calendar quarter through March 31, 2007 and increase to $39,703,125 each
calendar quarter from June 30, 2007 to maturity at March 31, 2008. The amended
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 2.50%.
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 will range 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 senior secured credit facility).
The senior secured 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 Company recorded a loss on early retirement of debt of $7,528,269
during the nine month period ended September 30, 2003, which included (i)
$1,645,759 of unamortized debt issue costs associated with the retirement of the
Company's then existing Credit Facility and the Cinema Properties Facility that
occurred during the first quarter of 2003; (ii) $5,612,377 of unamortized debt
issue costs, unamortized bond premiums/discounts and tender offer repurchase
costs associated with the tender offer to repurchase and subsequent retirement
of approximately $233 million principal amount of outstanding 9 5/8% Senior
Subordinated Notes that occurred during the second quarter of 2003; and (iii)
$270,133 of unamortized debt issue costs, unamortized bond premiums/discounts
and other fees associated with the redemption of the remaining $42 million
principal amount of the Company's 9 5/8% Senior Subordinated Notes due 2008 that
occurred during the third quarter of 2003.
10
10. Financial Information About Geographic Areas
The Company operates in one business segment as a motion picture
exhibitor. The Company has operations in the U.S., Canada, Mexico, Argentina,
Brazil, Chile, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica,
Panama, Colombia and the United Kingdom, which are reflected in the condensed
consolidated financial statements. Below is a breakdown of select financial
information by geographic area:
Nine Months Ended
September 30,
-------------
Revenues 2003 2002
-------- ---- ----
U.S. and Canada $543,890,714 $546,110,817
Mexico 53,784,278 66,448,495
Brazil 55,355,517 52,516,519
Other foreign countries 53,325,241 48,170,534
Eliminations (789,522) (708,468)
-----------------------------
Total $705,566,228 $712,537,897
=============================
September 30, December 31,
Theatre Properties and Equipment, net 2003 2002
------------------------------------- ---- ----
U.S. and Canada $614,796,267 $633,896,654
Mexico 63,526,184 67,990,885
Brazil 42,734,488 37,892,202
Other foreign countries 49,312,871 51,950,762
-----------------------------
Total $770,369,810 $791,730,503
=============================
11. New Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections". SFAS No. 145 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 9 for discussion of the loss on early retirement of debt recorded
in the three and nine month periods ended September 30, 2003 in conjunction with
the Company's long-term debt refinancing.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51."
FIN 46 addresses consolidation by business enterprises of variable interest
entities. FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. The FASB staff recently issued a FASB Staff
Position that deferred the effective date of FIN 46 until December 31, 2003 for
variable interest entities created before February 1, 2003. The Company does not
expect this statement to have a material impact on its condensed consolidated
financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. Adoption of SFAS No. 149 did not have a material impact on the
Company's condensed consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of these instruments
were previously classified as temporary equity. This statement will be effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise shall be effective at the beginning of the first interim period
beginning after June 15, 2003. Adoption of SFAS No. 150 does not impact the
Company's condensed consolidated financial statements.
11
12. Related Party Transactions
The Company manages one theatre with twelve screens for Laredo Theatre,
Ltd ("Laredo"). The Company is the sole general partner and owns 75% of the
limited partnership interests of Laredo. Lone Star Theatres, Inc. owns the
remaining 25% of the limited partnership interests in Laredo and is 100% owned
by Mr. David Roberts, Lee Roy Mitchell's son-in-law. Under the agreement,
management fees are paid by Laredo to the Company at a rate of 5% of annual
theatre revenues up to $50,000,000 and 3% of annual theater revenues in excess
of $50,000,000. The Company recorded $171,796 of management fee revenues and
received $675,000 of distributions from Laredo during the nine month period
ended September 30, 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 Lee Roy Mitchell's
family. Under the agreement, management fees are paid by Mitchell Theatres to
the Company at a rate of 5% of annual 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 $24,348 of management fee revenues from
Mitchell Theatres during the nine month period ended September 30, 2003.
The Company leases one theatre with seven screens from Plitt Plaza Joint
Venture ("Plitt Plaza"). Plitt Plaza is indirectly owned by Lee Roy Mitchell.
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 $209,040 of facility
lease expense payable to Plitt Plaza during the nine month period ended
September 30, 2003. The lease for this theatre expired in July 2003, at which
time the lease became month-to-month. The Company has plans to open a new
theatre in the same city (scheduled to open in December 2003) and is currently
negotiating new lease terms for the existing theatre.
The Company entered into a profit participation agreement on May 17,
2002 with its President, Alan Stock, pursuant to which Mr. Stock receives a
profit interest in two recently built theatres once 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 completion of an initial public offering of
Cinemark, Inc.'s common stock, 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.
13. Litigation and Litigation Settlements
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 Americans with Disabilities Act of 1990 (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 appealed the district court's ruling with the
Sixth Circuit Court of Appeals. On November 7, 2003, the Sixth Circuit Court of
Appeals reversed the summary judgment and sent the case back to the district
court for further review without deciding whether wheelchair seating at the
Company's theatres comply with the ADA. The Sixth Circuit Court of Appeals also
stated that if the district court found that the theatres did not comply with
the ADA, any remedial action should be prospective only. 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
12
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 plaintiffs failed to timely appeal the verdict.
Accordingly, the Company has not established a reserve for loss in connection
with this proceeding.
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 which claims are similar
to those raised in the Wittie case in the preceding paragraph. 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.
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 has
vigorously defended 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. On August 5, 2003, the federal district
judge presiding over the case granted summary judgment to the defendants on the
alleged ADA violations. The plaintiffs have appealed the August 5, 2003
decision. 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.
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, individually or
in the aggregate, to the Company's financial position, results of operations and
cash flows.
14. Condensed Consolidated Financial Statements of Subsidiary Guarantors
The Company has outstanding $105 million principal amount of 8 1/2%
Senior Subordinated Notes due 2008 and $360 million principal amount of 9%
Senior Subordinated Notes due 2013. All of the Company's Senior Subordinated
Notes are fully and unconditionally guaranteed, jointly and severally, on a
senior subordinated unsecured basis by the following subsidiaries of Cinemark
USA, Inc.:
Cinemark, L.L.C., Sunnymead 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.
13
The following supplemental condensed consolidating financial statements present:
1. Condensed consolidating balance sheets as of September 30, 2003 and
December 31, 2002 and condensed consolidating statements of
operations and cash flows for each of the nine month periods ended
September 30, 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.
14
SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
SEPTEMBER 30, 2003
Parent Subsidiary Subsidiary
ASSETS Company Guarantors Non-Guarantors Eliminations Consolidated
CURRENT ASSETS
Cash and cash equivalents $ 4,458,630 $ 2,295,027 $ 44,100,827 $ - $ 50,854,484
Inventories 1,597,551 956,781 1,251,385 - 3,805,717
Accounts receivable 31,974,602 5,711,022 6,929,397 (30,051,007) 14,564,014
Income tax receivable 659,562 28,900 (688,462) - -
Prepaid expenses and other 4,502,364 1,352,611 2,440,599 (2,005,000) 6,290,574
-----------------------------------------------------------------------
Total current assets 43,192,709 10,344,341 54,033,746 (32,056,007) 75,514,789
THEATRE PROPERTIES AND EQUIPMENT - net 300,435,506 295,807,396 174,126,908 - 770,369,810
OTHER ASSETS
Goodwill 7,897,512 412,327 2,891,750 (203,896) 10,997,693
Investments in and advances to affiliates 489,405,982 352,465,607 28,977,277 (867,828,024) 3,020,842
Deferred charges and other - net 22,569,074 1,217,999 72,348,035 (57,960,409) 38,174,699
-----------------------------------------------------------------------
Total other assets 519,872,568 354,095,933 104,217,062 (925,992,329) 52,193,234
-----------------------------------------------------------------------
TOTAL ASSETS $863,500,783 $660,247,670 $332,377,716 $(958,048,336) $898,077,833
=======================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,705,629 $ - $ 4,779,540 $ - $ 6,485,169
Current income taxes payable 7,791,600 - (1,572,068) - 6,219,532
Accounts payable and accrued expenses 44,654,215 39,666,081 34,756,055 (30,011,858) 89,064,493
-----------------------------------------------------------------------
Total current liabilities 54,151,444 39,666,081 37,963,527 (30,011,858) 101,769,194
LONG-TERM LIABILITIES
Long-term debt, less current portion 670,037,507 43,737,910 83,856,826 (144,352,219) 653,280,024
Deferred income taxes 12,346,091 11,509,262 (6,656,002) - 17,199,351
Other long-term liabilities and deferrals 28,421,741 72,194,039 5,228,132 (71,995,000) 33,848,912
-----------------------------------------------------------------------
Total long-term liabilities 710,805,339 127,441,211 82,428,956 (216,347,219) 704,328,287
MINORITY INTERESTS IN SUBSIDIARIES - 1,201,289 31,236,099 - 32,437,388
SHAREHOLDER'S EQUITY
Common stock 49,546,772 25,789 111,543,706 (111,572,825) 49,543,442
Other shareholder's equity 48,997,228 491,913,300 69,205,428 (600,116,434) 9,999,522
-----------------------------------------------------------------------
Total shareholder's equity 98,544,000 491,939,089 180,749,134 (711,689,259) 59,542,964
-----------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $863,500,783 $660,247,670 $332,377,716 $(958,048,336) $898,077,833
=======================================================================
15
SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2003
Parent Subsidiary Subsidiary
Company Guarantors Non-Guarantors Eliminations Consolidated
REVENUES $332,583,473 $248,802,625 $173,168,682 $ (48,988,552) $705,566,228
COSTS AND EXPENSES
Cost of operations 287,320,256 156,771,099 129,775,725 (49,358,313) 524,508,767
General and administrative expenses 3,268,417 18,469,786 9,440,490 369,761 31,548,454
Depreciation and amortization 16,021,484 16,461,460 17,030,728 - 49,513,672
Asset impairment loss - 820,493 3,740,352 - 4,560,845
(Gain) loss on sale of assets and other 254,345 (1,021,558) 8,691 - (758,522)
-----------------------------------------------------------------------
Total costs and expenses 306,864,502 191,501,280 159,995,986 (48,988,552) 609,373,216
-----------------------------------------------------------------------
OPERATING INCOME 25,718,971 57,301,345 13,172,696 - 96,193,012
OTHER INCOME (EXPENSE)
Interest expense (39,345,837) (4,102,551) (5,657,112) 9,022,210 (40,083,290)
Amortization of debt issue cost (1,578,077) (130,329) (26,905) - (1,735,311)
Interest income 4,124,949 5,117,008 1,376,246 (9,022,210) 1,595,993
Foreign currency exchange gain - - 138,904 - 138,904
Loss on early retirement of debt (6,644,647) (883,622) - - (7,528,269)
Equity in income (loss) of affiliates 51,600,662 3,144,182 358,589 (54,531,186) 572,247
Minority interests in income of subsidiaries - (189,986) (2,701,420) - (2,891,406)
-----------------------------------------------------------------------
Total other income (expense) 8,157,050 2,954,702 (6,511,698) (54,531,186) (49,931,132)
-----------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 33,876,021 60,256,047 6,660,998 (54,531,186) 46,261,880
Income taxes 5,409,926 9,056,085 3,331,890 - 17,797,901
-----------------------------------------------------------------------
NET INCOME (LOSS) $ 28,466,095 $ 51,199,962 $ 3,329,108 $ (54,531,186) $ 28,463,979
=======================================================================
16
SUBSIDIARY GUARANTORS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2003
Parent Subsidiary Subsidiary
Company Guarantors Non-Guarantors Eliminations Consolidated
OPERATING ACTIVITIES
Net income (loss) $ 28,466,095 $ 51,199,962 $ 3,329,108 $ (54,531,186) $ 28,463,979
Noncash items in net income (loss):
Depreciation and amortization 15,222,685 16,591,789 18,410,878 - 50,225,352
Loss on impairment of assets - 820,493 3,740,352 - 4,560,845
(Gain) loss on sale of assets and other 254,345 (1,021,558) 8,691 - (758,522)
Loss on early retirement of debt 6,644,647 883,622 - - 7,528,269
Deferred lease expenses 8,842,519 (7,533,452) 897,255 - 2,206,322
Deferred income tax expenses 1,970,668 3,483,672 574,883 - 6,029,223
Equity in (income) loss of affiliates (51,600,662) (3,144,182) (358,589) 54,531,186 (572,247)
Minority interests in income of subsidiaries - 189,986 2,701,420 - 2,891,406
Cash provided by (used for) operating working capital (36,845,355) (648,898) 1,666,397 (8,454,220) (44,282,076)
-----------------------------------------------------------------------
Net cash provided by (used for) operating activities (27,045,058) 60,821,434 30,970,395 (8,454,220) 56,292,551
INVESTING ACTIVITIES
Additions to theatre properties and equipment (6,067,434) (9,481,458) (12,020,915) - (27,569,807)
Sale of theatre properties and equipment 86,063 2,065,377 152,000 - 2,303,440
Net transactions with affiliates (34,359,586) (20,524,917) (6,565,545) 61,747,199 297,151
-----------------------------------------------------------------------
Net cash provided by (used for) investing activities (40,340,957) (27,940,998) (18,434,460) 61,747,199 (24,969,216)
FINANCING ACTIVITIES
Issuance of senior subordinated notes 375,225,000 - - - 375,225,000
Retirement of senior subordinated notes (275,000,000) - - - (275,000,000)
Increase in long-term debt 403,512,451 - - - 403,512,451
Decrease in long-term debt (453,632,229) (74,335,900) (8,250,200) - (536,218,329)
Increase in debt issue cost (15,598,321) - - - (15,598,321)
Change in intercompany notes 27,850,000 20,140,000 5,302,979 (53,292,979) -
Increase in minority investment in subsidiaries - - 3,473,150 - 3,473,150
Decrease in minority investment in subsidiaries - (225,000) (417,097) - (642,097)
-----------------------------------------------------------------------
Net cash provided by (used for) financing activities 62,356,901 (54,420,900) 108,832 (53,292,979) (45,248,146)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS - - 1,060,780 - 1,060,780
-----------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,029,114) (21,540,464) 13,705,547 - (12,864,031)
CASH AND CASH EQUIVALENTS:
Beginning of period 9,487,744 23,835,491 30,395,280 - 63,718,515
-----------------------------------------------------------------------
End of period $ 4,458,630 $ 2,295,027 $ 44,100,827 $ - $ 50,854,484
=======================================================================
17
SUBSIDIARY GUARANTORS
CONDENSED 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
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
=======================================================================
18
SUBSIDIARY GUARANTORS
CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2002
Parent Subsidiary Subsidiary
Company Guarantors Non-Guarantors Eliminations Consolidated
REVENUES $341,372,770 $235,039,449 $178,326,272 $ (42,200,594) $712,537,897
COSTS AND EXPENSES
Cost of operations 269,809,372 167,011,339 128,170,342 (42,200,594) 522,790,459
General and administrative expenses 22,501,573 - 9,674,223 - 32,175,796
Depreciation and amortization 16,545,135 16,132,132 17,909,833 - 50,587,100
Asset impairment loss - 558,398 223,378 - 781,776
Loss on sale of assets and other 307,737 152,947 265,349 - 726,033
-----------------------------------------------------------------------
Total costs and expenses 309,163,817 183,854,816 156,243,125 (42,200,594) 607,061,164
-----------------------------------------------------------------------
OPERATING INCOME 32,208,953 51,184,633 22,083,147 - 105,476,733
OTHER INCOME (EXPENSE)
Interest expense (40,860,665) (3,100,534) (6,926,922) 8,527,432 (42,360,689)
Amortization of debt issue cost (1,689,051) (73,751) (10,708) - (1,773,510)
Interest income 1,589,485 7,236,461 1,420,611 (8,527,432) 1,719,125
Foreign currency exchange loss - - (6,185,798) - (6,185,798)
Equity in income (loss) of affiliates 47,380,684 7,372,503 389,502 (54,589,602) 553,087
Minority interests in (income) loss of subsidiaries - (167,015) 172,640 - 5,625
-----------------------------------------------------------------------
Total other income (expense) 6,420,453 11,267,664 (11,140,675) (54,589,602) (48,042,160)
-----------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE 38,629,406 62,452,297 10,942,472 (54,589,602) 57,434,573
Income taxes 6,929,765 12,944,177 2,934,551 - 22,808,493
-----------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF AN
ACCOUNTING CHANGE 31,699,641 49,508,120 8,007,921 (54,589,602) 34,626,080
Cumulative effect of a change in accounting principle,
net of income tax benefit of $0. (91,394) (3,298,385) - - (3,389,779)
-----------------------------------------------------------------------
NET INCOME (LOSS) $ 31,608,247 $ 46,209,735 $ 8,007,921 $ (54,589,602) $ 31,236,301
=======================================================================
19
SUBSIDIARY GUARANTORS
CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2002
Parent Subsidiary Subsidiary
Company Guarantors Non-Guarantors Eliminations Consolidated
OPERATING ACTIVITIES
Net income (loss) $ 31,608,247 $ 46,209,735 $ 8,007,921 $ (54,589,602) $ 31,236,301
Noncash items in net income (loss):
Depreciation and amortization 15,127,544 16,205,882 19,305,054 - 50,638,480
Loss on impairment of assets - 558,398 223,378 - 781,776
Loss on sale of assets and other 307,737 152,947 265,349 - 726,033
Deferred lease expenses 1,183,115 254,450 66,237 - 1,503,802
Deferred income tax expenses 2,017,061 10,533,617 (2,264) - 12,548,414
Equity in (income) loss of affiliates (47,380,684) (7,372,503) (389,502) 54,589,602 (553,087)
Minority interests in income (loss) of subsidiaries - 167,015 (172,640) - (5,625)
Cumulative effect of an accounting change 91,394 3,298,385 - - 3,389,779
Cash provided by (used for) operating working capital (19,258,612) 56,593,580 (64,027,099) 6,976,210 (19,715,921)
-----------------------------------------------------------------------
Net cash provided by (used for) operating activities (16,304,198) 126,601,506 (36,723,566) 6,976,210 80,549,952
INVESTING ACTIVITIES
Additions to theatre properties and equipment (4,146,630) (3,689,135) (9,308,784) - (17,144,549)
Sale of theatre properties and equipment 1,725,279 - - - 1,725,279
Net transactions with affiliates 25,002,391 (116,801,428) 13,168,215 79,225,162 594,340
-----------------------------------------------------------------------
Net cash provided by (used for) investing activities 22,581,040 (120,490,563) 3,859,431 79,225,162 (14,824,930)
FINANCING ACTIVITIES
Increase in long-term debt 42,514,736 - 2,230,460 - 44,745,196
Decrease in long-term debt (75,555,629) (4,500,000) (10,928,691) - (90,984,320)
Change in intercompany notes 21,738,000 (225,000) 64,688,372 (86,201,372) -
Increase in minority investment in subsidiaries - - 421,855 - 421,855
Decrease in minority investment in subsidiaries - (175,000) (10,727,187) - (10,902,187)
-----------------------------------------------------------------------
Net cash provided by (used for) financing activities (11,302,893) (4,900,000) 45,684,809 (86,201,372) (56,719,456)
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS - - (6,411,626) - (6,411,626)
-----------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,026,051) 1,210,943 6,409,048 - 2,593,940
CASH AND CASH EQUIVALENTS:
Beginning of period 8,590,808 12,560,326 29,048,089 - 50,199,223
-----------------------------------------------------------------------
End of period $ 3,564,757 $ 13,771,269 $ 35,457,137 $ - $ 52,793,163
=======================================================================
20
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 and earned at the theatres 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 through vendor marketing programs, pay
phones, ATM machines and electronic video games 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. 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 changes in 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.
Certain leases are also subject to additional percentage rent if a target annual
revenue level is achieved. As a percentage of revenues, facility lease expense
is also affected by the number of leased versus fee owned facilities.
Utilities and other costs include certain fixed costs such as property
taxes, certain variable costs 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 2002 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.
21
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 % of Revenues
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Revenues
Admissions 62.7% 63.4% 63.0% 63.9%
Concession 32.0 31.2 31.8 31.1
Other 5.3 5.4 5.2 5.0
------------------- -------------------
Total revenues 100.0 100.0 100.0 100.0
------------------- -------------------
Cost of operations 73.8 73.3 74.3 73.4
General and administrative expenses 4.5 4.2 4.5 4.5
Depreciation and amortization 6.6 7.1 7.0 7.1
Asset impairment loss 1.0 - 0.6 0.1
(Gain) loss on sale of assets and other 0.1 - (0.1) 0.1
------------------- -------------------
Total costs and expenses 86.0 84.6 86.3 85.2
------------------- -------------------
Operating income 14.0 15.4 13.7 14.8
=================== ===================
Three months ended September 30, 2003 and 2002
Revenues
Revenues for the three month period ended September 30, 2003 (the "third
quarter of 2003") increased to $252.6 million from $232.4 million for the three
month period ended September 30, 2002 (the "third quarter of 2002"),
representing an 8.7% increase. The increase in revenues for the third quarter is
primarily related to a 5.2% increase in attendance from 45.3 million patrons for
the third quarter of 2002 to 47.7 million patrons for the third quarter of 2003
and a 6.0% increase in concession revenues per patron. Revenues per screen
increased 7.8% to $83,006 in the third quarter of 2003 from $77,026 for the
third quarter of 2002.
Cost of Operations
Cost of operations, as a percentage of revenues, increased to 73.8% for
the third quarter of 2003 from 73.3% for the third quarter of 2002. Film rentals
and advertising costs increased to 53.8% of admissions revenues for the third
quarter of 2003 from 52.6% for the third quarter of 2002. The increase is
primarily due to improved film quality during the third quarter of 2003 compared
to the third quarter of 2002. Utilities and other costs increased to 11.6% of
revenues for the third quarter of 2003 from 10.9% for the third quarter of 2002.
The increase is primarily due to increased utilities, insurance and repairs and
maintenance expense. Concession supplies decreased to 17.9% of concession
revenues in the third quarter of 2003 from 18.4% in the third quarter of 2002.
The decrease is primarily related to the successful implementation of a domestic
price increase in the fourth quarter of 2002. Salaries and wages decreased to
10.2% of revenues in the third quarter of 2003 from 10.9% in the third quarter
of 2002. The decrease is primarily due to the 8.7% increase in revenues and the
semi-variable nature of salaries and wages.
22
General and Administrative Expenses
General and administrative expenses increased to $11.3 million in the
third quarter of 2003 from $9.7 million in the third quarter of 2002. As a
percentage of revenues, general and administrative expenses increased to 4.5%
for the third quarter of 2003 from 4.2% for the third quarter of 2002. The
increase is primarily due to increased professional fees.
Depreciation and Amortization
Depreciation and amortization of $16.7 million in the third quarter of
2003 was consistent with the $16.6 million recorded in the third quarter of
2002.
Asset Impairment Loss
During the third quarter of 2003, we wrote down the long-lived assets of
one theatre located in the United Kingdom to fair value, which resulted in an
asset impairment charge of $2.5 million.
Interest Expense
Interest costs incurred, which includes amortization of debt issue
costs, was $13.1 million for the third quarter of 2003 compared to $14.1 million
for the third quarter of 2002. The decrease is primarily due to reduced average
debt outstanding during the third quarter of 2003 compared with the third
quarter of 2002.
Foreign Currency Exchange Loss
A foreign currency exchange loss of $3.9 million was recorded for the
third quarter of 2002. The foreign currency exchange loss recorded during the
third quarter of 2002 was primarily due to the translation of Cinemark Brasil
S.A.'s debt denominated in other than local currency and the devaluation of the
real during the third quarter of 2002.
Income Taxes
Income tax expense of $7.8 million was recorded for the third quarter of
2003 compared to income tax expense of $9.2 million recorded for the third
quarter of 2002. Our effective tax rate for the third quarter of 2003 was 34.7%
compared to 47.2% for the third quarter of 2002.
Net Income
We realized net income of $14.6 million for the third quarter of 2003
compared to net income of $10.3 million for the third quarter of 2002. The
increase is primarily related to the 8.7% increase in revenues and the decrease
in foreign currency exchange loss partially offset by the asset impairment loss
recorded during the third quarter of 2003.
Nine months ended September 30, 2003 and 2002
Revenues
Revenues for the nine month period ended September 30, 2003 ("the 2003
period") decreased to $705.6 million from $712.5 million for the nine month
period ended September 30, 2002 ("the 2002 period"), representing a 1.0%
decrease. The decrease in revenues for the 2003 period is primarily related to a
0.7% decrease in attendance from 131.6 million patrons for the 2002 period to
130.7 million patrons for the 2003 period. Revenues per screen decreased 1.7% to
$232,484 in the 2003 period from $236,566 in the 2002 period.
Cost of Operations
Cost of operations, as a percentage of revenues, increased to 74.3% for
the 2003 period from 73.4% for the 2002 period. Film rentals and advertising
costs increased to 54.3% of admissions revenues for the 2003 period from 53.6%
for the 2002 period. The increase is due to increased film rental costs and
promotional activities during the 2003 period. Facility lease expense increased
to 12.7% of revenues for the 2003 period from 12.3% for the 2002 period. The
increase is primarily related to the 1.0% decrease in revenues and the fixed
cost nature of facility lease expense. Utilities and other costs increased to
11.8% of revenues for the 2003 period from 11.0% for the 2002 period. The
increase is primarily due
23
to increased utilities, insurance and repairs and maintenance expense.
Concession supplies decreased to 16.6% of concession revenues for the 2003
period from 17.6% for the 2002 period. The decrease is primarily a result of the
successful implementation of a domestic concession price increase during the
fourth quarter of 2002.
General and Administrative Expenses
General and administrative expenses decreased to $31.5 million in the
2003 period from $32.2 million in the 2002 period. General and administrative
expenses, as a percentage of revenues, were 4.5% for both the 2003 period and
2002 period.
Depreciation and Amortization
Depreciation and amortization decreased to $49.5 million for the 2003
period from $50.6 million for the 2002 period.
Asset Impairment Loss
We wrote down long-lived assets of certain properties to their fair
values, which resulted in asset impairment charges of $4.6 million and $0.8
million during the 2003 and 2002 periods, respectively. The asset impairment
charges recorded during the 2003 period included a $2.5 million write-down of
one theatre in the United Kingdom, a $1.3 million write-down of one theatre in
Mexico and a $0.8 million write-down of one theatre in the U.S. The asset
impairment charges recorded during the 2002 period included a $0.6 million
write-down of goodwill associated with our Argentine operations and a $0.2
million write-down of one theatre in El Salvador.
Interest Expense
Interest costs incurred, which includes amortization of debt issue
costs, was $41.8 million for the 2003 period compared to $44.1 million for the
2002 period. The decrease is primarily due to reduced average debt outstanding
during the 2003 period compared with the 2002 period.
Foreign Currency Exchange Loss
A foreign currency exchange loss of $6.2 million was recorded during the
2002 period. The foreign currency exchange loss recorded in the 2002 period was
primarily due to the translation of Cinemark Brasil S.A.'s debt denominated in
other than local currency and the devaluation of the real during the 2002
period.
Income Taxes
Income tax expense of $17.8 million was recorded for the 2003 period
compared to $22.8 million recorded for the 2002 period. Our effective tax rate
for the 2003 period was 38.5% compared to 39.7% for the 2002 period.
Cumulative Effect of an Accounting Change
A cumulative effect of a change in accounting principle charge of $3.4
million was recorded during the 2002 period related to the write-down of
goodwill and other intangible assets on January 1, 2002.
Net Income
We realized net income of $28.5 million for the 2003 period compared to
net income of $31.2 million for the 2002 period.
24
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 also continue to expand 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 senior secured credit
facility.
We are continuing to expand our U.S. theatre circuit. We opened one new
theatre (12 screens) during the nine month period ended September 30, 2003,
bringing our total domestic screen count to 2,218 screens (12 of which are in
Canada). At September 30, 2003, we had signed commitments to build three new
theatres with 31 screens scheduled to open in the U.S. by the end of 2003 and
build seven new theatres with 96 screens scheduled to open in the U.S.
subsequent to 2003. We estimate the remaining capital expenditures for the
development of these 127 screens in the U.S. will be approximately $45 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 senior secured 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 or call our
debt securities depending upon the availability and prices of such securities.
We are also continuing to expand our international theatre circuit. We
opened one new theatre (8 screens) and added two screens to an existing theatre
during the nine month period ended September 30, 2003, bringing our total
international screen count to 825 screens. At September 30, 2003, we had signed
commitments to build four new theatres with 26 screens and a five screen
expansion to an existing theatre scheduled to open in international markets by
the end of 2003 and build five new theatres with 35 screens scheduled to open in
international markets subsequent to 2003. We estimate the remaining capital
expenditures for the development of these 66 screens in international markets
will be approximately $25 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.
Financing Activities
As of September 30, 2003, our long-term debt obligations, capital lease
obligations, future minimum lease obligations under non-cancelable operating
leases, outstanding letters of credit and purchase commitments (excluding
capital expenditures) for each period indicated are summarized as follows:
Payments Due by Period
(in millions)
Less Than After
Contractual Obligations Total One Year 1 - 3 Years 4 - 5 Years 5 Years
----------------------- ----- --------- ----------- ----------- -------
Long-term debt $ 659.8 $ 6.5 $ 11.6 $ 267.1 $ 374.6
Capital lease obligations 0.1 0.1 - - -
Operating lease obligations 1,483.3 106.3 217.4 213.8 945.8
Letters of credit 0.1 0.1 - - -
Purchase commitments 3.2 2.0 0.9 0.3 -
As of September 30, 2003, we were in full compliance with all agreements
governing our outstanding debt.
25
New Senior Subordinated Notes Issuance and Retirement of Outstanding Senior
Subordinated Notes
On February 11, 2003, we issued $150 million principal amount of 9%
Senior Subordinated Notes to qualified institutional buyers in reliance on Rule
144A which were subsequently registered under the Securities Act of 1933.
Interest is payable on February 1 and August 1 of each year, beginning 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 our then existing Credit Facility.
On May 7, 2003, we issued an additional $210 million principal amount of
9% Senior Subordinated Notes at a premium of 107.25% of the principal amount to
qualified institutional buyers in reliance on Rule 144A which were subsequently
registered under the Securities Act of 1933. The new notes were offered as
additional debt securities under the indenture pursuant to which, on February
11, 2003, we issued $150 million principal amount of 9% Senior Subordinated
Notes. Interest is payable on February 1 and August 1 of each year, beginning
August 1, 2003. The notes mature on February 1, 2013. The net proceeds of this
add-on issuance of $226.7 million, which included a premium of $15.2 million,
and additional borrowings under our senior secured credit facility were utilized
to fund the purchase on May 16, 2003 of approximately $233 million principal
amount of outstanding 9 5/8% Senior Subordinated Notes tendered as of midnight
on May 15, 2003 pursuant to a tender offer announced on April 18, 2003.
On September 18, 2003, we redeemed the remaining $42 million principal
amount of outstanding 9 5/8% Senior Subordinated Notes utilizing the net
proceeds of our senior secured credit facility term loan that was amended on
August 18, 2003, along with additional borrowings under the $75 million
five-year revolving credit line.
We may redeem all or part of the new 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 in right of payment to our
senior secured credit facility or other senior indebtedness, 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 our non-guarantor subsidiaries.
Senior Subordinated Notes
As of September 30, 2003, we had two issues of Senior Subordinated Notes
outstanding: (1) $105 million principal amount of 8 1/2% Series B Senior
Subordinated Notes due 2008; and (2) $360 million principal amount of 9% Senior
Subordinated Notes due 2013. Interest on each issue is payable 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.
The Senior Subordinated Notes are general, unsecured obligations and are
subordinated in right of payment to the senior secured credit facility or other
senior indebtedness. 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 our non-guarantor subsidiaries.
Generally, if we are in default under the senior secured 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.
26
New Senior Secured Credit Facility
On February 14, 2003, we entered into a new senior secured credit
facility consisting of a $75 million five-year 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 net proceeds from the
senior secured credit facility were used to repay, in full, the then existing
Credit Facility and the Cinema Properties Facility. The term loan matures on
March 31, 2008, but will be extended to March 31, 2009, if on or prior to May
31, 2007 the maturity of our existing senior subordinated debt is extended
beyond September 30, 2009.
On August 18, 2003, we amended the senior secured credit facility with
Lehman Commercial Paper, Inc. for itself and as administrative agent for a
syndicate of lenders, to provide a $165 million term loan expiring on March 31,
2008 subject to the extensions noted above as permitted by the senior secured
credit facility. The net proceeds of the $165 million term loan and additional
borrowings under the $75 million five-year revolving credit line were used to
(i) repay $124.7 million of term loans outstanding under our senior secured
credit facility entered into February 14, 2003 and (ii) redeem the remaining $42
million principal amount of our outstanding 9 5/8% Senior Subordinated Notes on
September 18, 2003.
Under the amended term loan, principal payments of $412,500 are due each
calendar quarter through March 31, 2007 and increase to $39,703,125 each
calendar quarter from June 30, 2007 to maturity at March 31, 2008. The amended
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 2.50%.
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 senior secured credit facility).
The senior secured 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. Under the senior secured 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 senior secured credit facility. The senior
secured credit facility also contains certain other covenants and restrictions
customary in credit agreements of this kind.
At September 30, 2003, there was approximately $164.6 million
outstanding under the term loan and no outstanding revolver borrowings.
Approximately $74.9 million was available for borrowing under the revolving
credit line, giving effect to a $0.1 million letter of credit outstanding. The
effective interest rate on outstanding borrowings under the senior secured
credit facility at September 30, 2003 was 3.7% per annum.
Cinemark USA Revolving Credit Facility
In February 1998, we entered into a reducing revolving credit facility
(the "Credit Facility") with a group of banks for which Bank of America, N.A.
acted 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. We prepaid a
portion of the indebtedness outstanding under the Credit Facility on February
11, 2003 with the net proceeds of our new $150 million principal amount 9%
Senior Subordinated Notes issuance. The Credit Facility was repaid in full on
February 14, 2003 from the net proceeds of our senior secured credit facility
entered into with Lehman Commercial Paper, Inc. for itself and as administrative
agent for a syndicate of lenders.
27
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 was a
revolving credit facility and provided for a loan to Cinemark Mexico of up to
$30 million in the aggregate. 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.
Cinema Properties Term Loan
In December 2000, Cinema Properties, Inc., a wholly owned subsidiary
that was 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 was originally scheduled to mature 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. The $77
million Cinema Properties Facility was repaid in full on February 14, 2003 from
the net proceeds of our 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 three 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$3.8 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$1.9 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%; and
(3) 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. A fourth funding
source (import financing executed with Banco ABC Brasil) was paid in full during
the second quarter of 2003. As of September 30, 2003, an aggregate of $4.0
million was outstanding and the average effective interest rate on such
borrowings was 14.3% per annum.
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
28
the Association of Banks and Financial Institutions Act plus 2%. As of September
30, 2003, $7.7 million was outstanding under this agreement and the effective
interest rate on such borrowing was 5.7% per annum.
Seasonality
Our revenues have historically been seasonal, coinciding with the timing
of releases of motion pictures by the major distributors. Generally, the most
successful motion pictures have been released during 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 our results of operations, and the results of
one quarter are not necessarily indicative of results for the next quarter or
for the same period in the following year.
Cautionary Statement Regarding Forward-Looking Statements
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;
o the number or diversity of popular movies released;
o 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.
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.
29
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 variable rate debt facilities. At September 30, 2003, we
had an aggregate of $180.4 million of variable rate debt outstanding under these
facilities. Borrowings under these facilities represent approximately 27% of our
total outstanding long-term debt at September 30, 2003. Based on the interest
rate levels in effect on the variable rate debt outstanding at September 30,
2003, a 100 basis point increase in market interest 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 our fixed rate and variable
rate long-term debt agreements:
Expected Maturity As of September 30, 2003
(in millions)
September 30, Average
-------------------------------------------------- Fair Interest
2004 2005 2006 2007 2008 Thereafter Total Value Rate
---- ---- ---- ---- ---- ---------- ----- ----- ----
Fixed rate $ 0.1 $ 0.1 $ 0.1 $ - $104.5 $ 374.6 $ 479.4 $ 483.4 8.9%
Variable rate 6.4 5.6 5.8 82.3 80.3 - 180.4 182.6 4.1%
--------------------------------------------------------------------------------------
Total debt $ 6.5 $ 5.7 $ 5.9 $ 82.3 $184.8 $ 374.6 $ 659.8 $ 666.0
======================================================================================
Expected Maturity As of December 31, 2002
(in millions)
December 31, Average
-------------------------------------------------- Fair Interest
2003 2004 2005 2006 2007 Thereafter Total Value Rate
---- ---- ---- ---- ---- ---------- ----- ----- ----
Fixed rate $ 0.1 $ - $ 0.1 $ - $ - $ 380.2 $ 380.4 $ 393.8 9.3%
Variable rate 30.1 165.6 94.6 19.9 2.0 - 312.2 324.1 4.4%
--------------------------------------------------------------------------------------
Total debt $ 30.2 $165.6 $ 94.7 $ 19.9 $ 2.0 $ 380.2 $ 692.6 $ 717.9
======================================================================================
In December 2000, Cinema Properties, Inc., a wholly-owned subsidiary of
ours, entered into the Cinema Properties Facility. As part of the Cinema
Properties Facility, to hedge against future changes in interest rates, Cinema
Properties, Inc. purchased an Interest Rate Cap Agreement, with a notional
amount equal to $77 million, a five-year term and a strike rate equal to the
excess of three month LIBOR over the strike price of 6.58%, from Lehman Brothers
Derivative Products Inc. At December 31, 2002, the Interest Rate Cap Agreement
was recorded at its fair value of $0.1 million. During the nine month period
ended September 30, 2003, the Interest Rate Cap Agreement was written down to
$0. We do not have any additional derivative financial instruments in place as
of September 30, 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 September 30, 2003,
holding everything else constant, a 10% immediate unfavorable change in each of
the foreign
30
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
Evaluation of Disclosure Controls and Procedures
We have established a system of controls and other procedures designed
to ensure that information required to be disclosed in our 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.
Changes in Internal Controls
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.
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. See updated discussion of
Litigation and Litigation Settlements in the notes to condensed consolidated
financial statements.
Item 5. Other Information
Supplemental Schedules specified by the Senior Subordinated
Notes Indenture: Page
----
Condensed Consolidating Balance Sheets (unaudited) as of
September 30, 2003 32
Condensed Consolidating Statements of Operations (unaudited)
for the nine month period ended September 30, 2003 33
Condensed Consolidating Statements of Cash Flows (unaudited)
for the nine month period ended September 30, 2003 34
31
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 2003
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- -------------- -------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 21,677,046 $ 29,177,438 $ - $ 50,854,484
Inventories 3,153,227 652,490 - 3,805,717
Accounts receivable (17,012,398) 31,960,671 (384,259) 14,564,014
Income tax receivable (1,545,124) 1,545,124 - -
Prepaid expenses and other 5,464,202 826,372 - 6,290,574
--------------------------------------------------------------------
Total current assets 11,736,953 64,162,095 (384,259) 75,514,789
THEATRE PROPERTIES AND EQUIPMENT - net 699,535,867 70,833,943 - 770,369,810
OTHER ASSETS
Goodwill 8,105,943 2,891,750 - 10,997,693
Investments in and advances to affiliates 168,081,309 1,293,843 (166,354,310) 3,020,842
Deferred charges and other - net 32,698,264 5,476,435 - 38,174,699
--------------------------------------------------------------------
Total other assets 208,885,516 9,662,028 (166,354,310) 52,193,234
--------------------------------------------------------------------
TOTAL ASSETS $ 920,158,336 $ 144,658,066 $(166,738,569) $ 898,077,833
====================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,890,871 $ 4,594,298 $ - $ 6,485,169
Current income taxes payable 4,898,377 1,321,155 - 6,219,532
Accounts payable and accrued expenses 74,302,341 15,165,041 (402,889) 89,064,493
--------------------------------------------------------------------
Total current liabilities 81,091,589 21,080,494 (402,889) 101,769,194
LONG-TERM LIABILITIES
Senior credit agreements 165,143,057 9,020,985 - 174,164,042
Senior subordinated notes 479,115,982 - - 479,115,982
Deferred lease expenses 24,782,230 2,261,549 - 27,043,779
Deferred gain on sale leasebacks 4,098,180 - - 4,098,180
Deferred income taxes 17,432,038 (232,687) - 17,199,351
Deferred revenues and other long-term liabilities 663,389 2,043,564 - 2,706,953
--------------------------------------------------------------------
Total long-term liabilities 691,234,876 13,093,411 - 704,328,287
MINORITY INTERESTS IN SUBSIDIARIES 8,767,113 23,670,275 - 32,437,388
SHAREHOLDER'S EQUITY
Class A common stock, $.01 par value: 10,000,000 shares
authorized, 1,500 shares issued and outstanding 15 14,952,000 (14,952,000) 15
Class B common stock, no par value: 1,000,000 shares
authorized, 239,893 shares issued and outstanding 49,543,427 6,000 (6,000) 49,543,427
Additional paid-in-capital 12,796,687 151,377,681 (151,377,680) 12,796,688
Retained earnings 152,938,677 (44,201,375) - 108,737,302
Treasury stock, 57,245 Class B shares at cost (24,232,890) - - (24,232,890)
Accumulated other comprehensive loss (51,981,158) (35,320,420) - (87,301,578)
--------------------------------------------------------------------
Total shareholder's equity 139,064,758 86,813,886 (166,335,680) 59,542,964
--------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 920,158,336 $ 144,658,066 $(166,738,569) $ 898,077,833
====================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indentures
for the Senior Subordinated Notes.
32
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- -------------- -------------- --------------
REVENUES $ 611,108,213 $ 96,506,790 $ (2,048,775) $ 705,566,228
COSTS AND EXPENSES
Cost of operations 451,318,270 75,239,272 (2,048,775) 524,508,767
General and administrative expenses 25,720,404 5,828,050 - 31,548,454
Depreciation and amortization 40,912,510 8,601,162 - 49,513,672
Asset impairment loss 4,560,845 - - 4,560,845
(Gain) loss on sale of assets and other (769,661) 11,139 - (758,522)
--------------------------------------------------------------------
Total costs and expenses 521,742,368 89,679,623 (2,048,775) 609,373,216
--------------------------------------------------------------------
OPERATING INCOME 89,365,845 6,827,167 - 96,193,012
OTHER INCOME (EXPENSE)
Interest expense (38,365,880) (1,717,410) - (40,083,290)
Amortization of debt issue cost (1,529,777) (205,534) - (1,735,311)
Interest income 596,451 999,542 - 1,595,993
Foreign currency exchange gain 102,105 36,799 - 138,904
Loss on early retirement of debt (6,202,902) (1,325,367) - (7,528,269)
Equity in income of affiliates 213,658 358,589 - 572,247
Minority interests in income of subsidiaries (1,029,974) (1,861,432) - (2,891,406)
--------------------------------------------------------------------
Total other expenses (46,216,319) (3,714,813) - (49,931,132)
--------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 43,149,526 3,112,354 - 46,261,880
Income taxes 16,613,902 1,183,999 - 17,797,901
-------------------------------------------------------------------
NET INCOME $ 26,535,624 $ 1,928,355 $ - $ 28,463,979
====================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indentures
for the Senior Subordinated Notes.
33
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited)
Restricted Unrestricted
Group Group Eliminations TOTAL
-------------- -------------- -------------- --------------
OPERATING ACTIVITIES
Net income $ 26,535,624 $ 1,928,355 $ - $ 28,463,979
Noncash items in net income:
Depreciation 40,499,256 8,523,435 - 49,022,691
Amortization of other assets 413,254 77,727 - 490,981
Amortization of foreign advanced rents 810,473 542,772 - 1,353,245
Amortized compensation - stock options 821,828 - - 821,828
Amortization of debt issue costs 1,529,777 205,534 - 1,735,311
Amortization of gain on sale leasebacks (274,440) - - (274,440)
Amortization of debt discount and premium (606,253) - - (606,253)
Amortization of deferred revenues (2,318,011) - - (2,318,011)
Loss on impairment of assets 4,560,845 - - 4,560,845
(Gain) loss on sale of assets and other (769,661) 11,139 - (758,522)
Loss on early retirement of debt 6,202,902 1,325,367 - 7,528,269
Deferred lease expenses 359,896 1,846,426 - 2,206,322
Deferred income tax expenses 6,616,910 (587,687) - 6,029,223
Equity in (income) loss of affiliates (213,658) (358,589) - (572,247)
Minority interests in income of subsidiaries 1,029,974 1,861,432 - 2,891,406
Cash provided by (used for) operating working capital (12,775,004) (31,507,072) - (44,282,076)
--------------------------------------------------------------------
Net cash provided by (used for) operating activities 72,423,712 (16,131,161) - 56,292,551
INVESTING ACTIVITIES
Additions to theatre properties and equipment (22,516,492) (5,053,315) - (27,569,807)
Sale of theatre properties and equipment 2,223,574 79,866 - 2,303,440
Transfer of theatre properties and equipment (93,106,945) 93,106,945 - -
Investment in affiliates (3,314) - - (3,314)
Dividends/capital returned from affiliates 153,000 147,465 - 300,465
--------------------------------------------------------------------
Net cash provided by (used for) investing activities (113,250,177) 88,280,961 - (24,969,216)
FINANCING ACTIVITIES
Issuance of senior subordinated notes 375,225,000 - - 375,225,000
Retirement of senior subordinated notes (275,000,000) - - (275,000,000)
Increase in long-term debt 403,512,451 - - 403,512,451
Decrease in long-term debt (453,194,690) (83,023,639) - (536,218,329)
Increase in debt issue cost (15,598,321) - - (15,598,321)
Increase in minority investment in subsidiaries 11,495 3,461,655 - 3,473,150
Decrease in minority investment in subsidiaries (480,479) (161,618) - (642,097)
--------------------------------------------------------------------
Net cash provided by (used for) financing activities 34,475,456 (79,723,602) - (45,248,146)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (457,454) 1,518,234 - 1,060,780
--------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (6,808,463) (6,055,568) - (12,864,031)
CASH AND CASH EQUIVALENTS:
Beginning of period 28,485,509 35,233,006 - 63,718,515
--------------------------------------------------------------------
End of period $ 21,677,046 $ 29,177,438 $ - $ 50,854,484
====================================================================
Note: "Restricted Group" and "Unrestricted Group" are defined in the Indentures
for the Senior Subordinated Notes.
34
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Amended and Restated Articles of Incorporation of the
Company filed with the Texas Secretary of State on June
3,1992 (incorporated by reference to Exhibit 3.1(a) to
the Company's Annual Report on Form 10-K (File No.
033-47040) filed March 31, 1993).
3.2(a) Bylaws of the Company, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 033-47040) filed April
9, 1992).
3.2(b) Amendment to Bylaws of the Company dated March 12, 1996
(incorporated by reference to Exhibit 3.2(b) to the
Company's Annual Report on Form 10-K (File No.
033-47040) filed March 6, 1997).
4.1(a) Exchange and Registration Rights Agreement dated February
11, 2003, among Cinemark USA, Inc., certain subsidiary
guarantor parties thereto and the initial purchasers
named therein (incorporated by reference to Exhibit
10.2(c) to the Company's Annual Report on Form 10-K
(File No. 033-47040) filed March 19, 2003).
4.1(b) Exchange and Registration Rights Agreement dated May 7,
2003 among Cinemark USA, Inc., certain subsidiary
guarantors party thereto and the initial purchasers
named therein (incorporated by reference to Exhibit
4.1(b) to the Company's Registration Statement on Form
S-4 (File No. 333-104940) filed May 28, 2003.
4.2(a) Indenture dated August 15, 1996 between the Company and
U.S. Trust Company of Texas, N.A., governing the 9 5/8%
Senior Subordinated Notes issued thereunder
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (File No.
333-11895) filed September 13, 1996).
4.2(b) First Supplemental Indenture dated June 26, 1997 between
the Company and U.S. Trust Company of Texas, N.A.
(incorporated by reference to Exhibit 4.4 to Cinemark,
Inc.'s Registration statement on Form S-1 (File No.
333-88618) filed on May 17, 2002).
4.2(c) Second Supplemental Indenture dated as of February 11,
2003 between the Company, the Subsidiary guarantor
parties thereto and The Bank of New York Trust Company
of Florida, N.A., as successor trustee to U.S. Trust
Company of Texas, N.A. (incorporated by reference to
Exhibit 4.2 (c) to Cinemark, Inc.'s Registration
statement of Form S-1 (File No. 333-104940) filed on May
2, 2003).
4.2(d) Indenture dated June 26, 1997 between the Company and
U.S. Trust Company of Texas, N.A. governing the 9 5/8%
Senior Subordinated Notes issued thereunder
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (File No.
333-32959) filed August 6, 1997).
4.2(e) First Supplemental Indenture dated as of February 11,
2003 between the Company, the subsidiary guarantors
party thereto and The Bank of New York Trust Company of
Florida, N.A., as successor trustee to U.S. Trust
Company of Texas, N.A. (incorporated by reference to
Exhibit 4.2 (d) to the Company's Registration Statement
on Form S-4 (File No. 333-104940) filed May 2, 2003).
4.2(f) Indenture dated January 14, 1998 between the Company and
U.S. Trust Company of Texas, N.A. governing the 8 1/2%
Senior Subordinated Notes issued thereunder
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (File No.
333-45417) filed February 2, 1998).
4.2(g) First Supplemental Indenture dated as of February 11,
2003 between the Company, the subsidiary guarantors
party thereto and The Bank of New York Trust Company of
Florida, N.A., as successor trustee to U.S. Trust
Company of Texas, N.A. (incorporated by reference to
Exhibit 4.2 (g) to the Company's Registration Statement
on Form S-4 (File No. 333-104940) filed May 2, 2003).
4.2(h) Indenture dated February 11, 2003 between the Company and
The Bank of New York Trust Company of Florida, N.A.
governing the 9% Senior Subordinated Notes issued
thereunder (incorporated by reference to Exhibit 10.2(b)
to the Company's Annual Report on Form 10-K (File No.
033-47040) filed March 19, 2003).
4.2(i) First Supplemental Indenture dated as of May 7, 2003
between the Company, the subsidiary guarantors party
thereto and The Bank of New York Trust Company of
Florida, N.A. (incorporated by reference to Exhibit
4.2(i) to the Company's Registration Statement on Form
S-4 (File No. 333-104940) filed May 28, 2003).
35
4.2(j) Form of 9 5/8% Note (contained in the Indenture listed as
Exhibit 4.2(a) above) (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 File No. 333-11895) filed September 13, 1996).
4.2(k) Form of 9 5/8% Note (contained in the Indenture listed as
Exhibit 4.2(d) above) (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 File No. 333-32959) filed August 6, 1997).
4.2(l) Form of 8 1/2% Note (contained in the Indenture listed as
Exhibit 4.2(f) above) (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (File No. 333-45417) filed February 2, 1998).
4.2(m) Form of 9% Note (contained in the Indenture listed as
Exhibit 4.2(h) above) (incorporated by reference to
Exhibit 10.2(b) to the Company's Annual Report on Form
10-K (File 033-47040) filed March 19, 2003).
*10.1 First Amendment and Waiver, dated as of August, 15, 2003
to the Credit Agreement dated as of February 14, 2003
among Cinemark Inc., CNMK Holdings, Inc., the Company,
the several lenders from time to time parties thereto,
Lehman Brothers Inc., as arranger, Bank of America,
N.A., as syndication agent, Fleet National Bank, General
Electric Capital Corporation and The Bank of New York as
co-documentation agents.
*31.1 Certification of Chief Executive Officer of Cinemark USA,
Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
*31.2 Certification of Chief Financial Officer of Cinemark USA,
Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
*32.1 Certification of the Chief Executive Officer of Cinemark
USA, Inc. Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*32.2 Certification of the Chief Financial Officer of Cinemark
USA, Inc. Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*filed herewith.
b) Reports on Form 8-K
On August 4, 2003, the Company filed a Form 8-K, reporting under
Item 9 a press release announcing our operating results for the three
and six month periods ended June 30, 2003.
On November 13, 2003, the Company filed a Form 8-K, reporting
under Item 9 a press release announcing our operating results for the
three and nine month periods ended September 30, 2003.
36
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: November 14, 2003
/s/ Alan W. Stock
Alan W. Stock
President
/s/ Robert Copple
Robert Copple
Chief Financial Officer
37
Exhibit Index
3.1 Amended and Restated Articles of Incorporation of the
Company filed with the Texas Secretary of State on June
3,1992 (incorporated by reference to Exhibit 3.1(a) to
the Company's Annual Report on Form 10-K (File No.
033-47040) filed March 31, 1993).
3.2(a) Bylaws of the Company, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 033-47040) filed April
9, 1992).
3.2(b) Amendment to Bylaws of the Company dated March 12, 1996
(incorporated by reference to Exhibit 3.2(b) to the
Company's Annual Report on Form 10-K (File No.
033-47040) filed March 6, 1997).
4.1(a) Exchange and Registration Rights Agreement dated February
11, 2003, among Cinemark USA, Inc., certain subsidiary
guarantor parties thereto and the initial purchasers
named therein (incorporated by reference to Exhibit
10.2(c) to the Company's Annual Report on Form 10-K
(File No. 033-47040) filed March 19, 2003).
4.1(b) Exchange and Registration Rights Agreement dated May 7,
2003 among Cinemark USA, Inc., certain subsidiary
guarantors party thereto and the initial purchasers
named therein (incorporated by reference to Exhibit
4.1(b) to the Company's Registration Statement on Form
S-4 (File No. 333-104940) filed May 28, 2003.
4.2(a) Indenture dated August 15, 1996 between the Company and
U.S. Trust Company of Texas, N.A., governing the 9 5/8%
Senior Subordinated Notes issued thereunder
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (File No.
333-11895) filed September 13, 1996).
4.2(b) First Supplemental Indenture dated June 26, 1997
between the Company and U.S. Trust Company of Texas,
N.A. (incorporated by reference to Exhibit 4.4 to
Cinemark, Inc.'s Registration statement on Form S-1
(File No. 333-88618) filed on May 17, 2002).
4.2(c) Second Supplemental Indenture dated as of February 11,
2003 between the Company, the Subsidiary guarantor
parties thereto and The Bank of New York Trust Company
of Florida, N.A., as successor trustee to U.S. Trust
Company of Texas, N.A. (incorporated by reference to
Exhibit 4.2 (c) to Cinemark, Inc.'s Registration
statement of Form S-1 (File No. 333-104940) filed on May
2, 2003).
4.2(d) Indenture dated June 26, 1997 between the Company and
U.S. Trust Company of Texas, N.A. governing the 9 5/8%
Senior Subordinated Notes issued thereunder
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (File No.
333-32959) filed August 6, 1997).
4.2(e) First Supplemental Indenture dated as of February 11,
2003 between the Company, the subsidiary guarantors
party thereto and The Bank of New York Trust Company of
Florida, N.A., as successor trustee to U.S. Trust
Company of Texas, N.A. (incorporated by reference to
Exhibit 4.2 (d) to the Company's Registration Statement
on Form S-4 (File No. 333-104940) filed May 2, 2003).
4.2(f) Indenture dated January 14, 1998 between the Company and
U.S. Trust Company of Texas, N.A. governing the 8 1/2%
Senior Subordinated Notes issued thereunder
(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-4 (File No.
333-45417) filed February 2, 1998).
4.2(g) First Supplemental Indenture dated as of February 11,
2003 between the Company, the subsidiary guarantors
party thereto and The Bank of New York Trust Company of
Florida, N.A., as successor trustee to U.S. Trust
Company of Texas, N.A. (incorporated by reference to
Exhibit 4.2 (g) to the Company's Registration Statement
on Form S-4 (File No. 333-104940) filed May 2, 2003).
4.2(h) Indenture dated February 11, 2003 between the Company and
The Bank of New York Trust Company of Florida, N.A.
governing the 9% Senior Subordinated Notes issued
thereunder (incorporated by reference to Exhibit 10.2(b)
to the Company's Annual Report on Form 10-K (File No.
033-47040) filed March 19, 2003).
4.2(i) First Supplemental Indenture dated as of May 7, 2003
between the Company, the subsidiary guarantors party
thereto and The Bank of New York Trust Company of
Florida, N.A. (incorporated by reference to Exhibit
4.2(i) to the Company's Registration Statement on Form
S-4 (File No. 333-104940) filed May 28, 2003).
4.2(j) Form of 9 5/8% Note (contained in the Indenture listed as
Exhibit 4.2(a) above) (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 File No. 333-
38
11895) filed September 13, 1996).
4.2(k) Form of 9 5/8% Note (contained in the Indenture listed as
Exhibit 4.2(d) above) (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 File No. 333-32959) filed August 6, 1997).
4.2(l) Form of 8 1/2% Note (contained in the Indenture listed as
Exhibit 4.2(f) above) (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (File No. 333-45417) filed February 2, 1998).
4.2(m) Form of 9% Note (contained in the Indenture listed as
Exhibit 4.2(h) above) (incorporated by reference to
Exhibit 10.2(b) to the Company's Annual Report on Form
10-K (File 033-47040) filed March 19, 2003).
*10.1 First Amendment and Waiver, dated as of August, 15, 2003
to the Credit Agreement dated as of February 14, 2003
among Cinemark Inc., CNMK Holdings, Inc., the Company,
the several lenders from time to time parties thereto,
Lehman Brothers Inc., as arranger, Bank of America,
N.A., as syndication agent, Fleet National Bank, General
Electric Capital Corporation and The Bank of New York as
co-documentation agents.
*31.1 Certification of Chief Executive Officer of Cinemark USA,
Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
*31.2 Certification of Chief Financial Officer of Cinemark USA,
Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
*32.1 Certification of the Chief Executive Officer of Cinemark
USA, Inc. Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*32.2 Certification of the Chief Financial Officer of Cinemark
USA, Inc. Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*filed herewith.
39
EXHIBIT 10.1
FIRST AMENDMENT AND WAIVER, dated as of August 15, 2003 (this
"Amendment"), to the CREDIT AGREEMENT, dated as of February 14, 2003 (as
amended, supplemented or otherwise modified in writing from time to time, the
"Credit Agreement"), among CiNemark, inc. (the "Parent"), cnmk holding, inc.
("Holdings"), cinemark usa, inc. (the "Borrower"), the several banks and other
financial institutions or entities from time to time parties to the Credit
Agreement (the "Lenders"), LEHMAN BROTHERS INC., as sole lead arranger and
bookrunner, BANK OF AMERICA, N.A., as syndication agent, and LEHMAN COMMERCIAL
PAPER INC., as administrative agent (in such capacity, the "Administrative
Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed
to make, and have made, certain Loans and other extensions of credit to the
Borrower;
WHEREAS, the Borrower desires to refinance the outstanding principal
balance of the Term Loans made on the Closing Date (the "August 2003 Term Loan
Refinancing");
WHEREAS, the Borrower intends to redeem (the "9 5/8% Redemption") up
to $29,916,000 of its outstanding 9 5/8% Series B Senior Subordinated Notes due
2008 (the "Series B Senior Subordinated Notes") and up to $12,095,000 of its
outstanding 9 5/8% Series D Senior Subordinated Notes due 2008 (the "Series D
Senior Subordinated Notes" and, together with the Series B Senior Subordinated
Notes, the "Redeemed 9 5/8% Notes");
WHEREAS, in order to finance the August 2003 Term Loan Refinancing
and the 9 5/8% Redemption, the Borrower has requested that the Lenders agree to
make certain amendments to the Credit Agreement; and
WHEREAS, the Lenders have agreed to make such amendments solely upon
the terms and conditions provided for in this Amendment;
NOW, THEREFORE, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise noted herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
2. Amendments to Section 1.1 of the Credit Agreement (Defined
Terms). (a) Section 1.1 is hereby amended by adding the following new defined
terms in the appropriate alphabetical order:
"9 5/8% Redemption": the redemption by the Borrower of the Redeemed
9 5/8% Notes.
"August 2003 Term Loan Refinancing": the refinancing of the
outstanding principal balance of the Term Loans (as defined in the Credit
Agreement in effect prior to the First Amendment) on the Tranche C Term
Loan Effective Date.
"Extended Tranche C Term Loan Maturity Date": as defined in Section
2.24(c).
"First Amendment": the First Amendment and Waiver, dated as of
August 15, 2003, to this Agreement.
"Redeemed 9 5/8 Notes": a collective reference to up to $29,916,000
of the Borrower's outstanding 9 5/8% Series B Senior Subordinated Notes
due 2008 and up to $12,095,000 of the Borrower's outstanding 9 5/8% Series
D Senior Subordinated Notes due 2008.
"Tranche C Term Loan": as defined in Section 2.24(a).
"Tranche C Term Loan Commitment": as to any Lender, the obligation
of such Lender, if any, to make a Tranche C Term Loan to the Borrower
hereunder in a principal amount not to exceed the amount set forth under
the heading "Tranche C Term Loan Commitment" opposite such Lender's name
on Schedule 1 to the Lender Addendum delivered by such Lender, or, as the
case may be, in the Assignment and Acceptance pursuant to which such
Lender became a party hereto, as the same may be changed from time to time
pursuant to the terms hereof. The original aggregate amount of the Tranche
C Term Loan Commitments is $165,000,000.
"Tranche C Term Loan Effective Date": the date on which the
conditions precedent set forth in Section 14 of the First Amendment shall
have been satisfied.
"Tranche C Term Loan Facility": the Tranche C Term Loan Commitments
and the Tranche C Term Loans made thereunder.
"Tranche C Term Loan Facility Syndication Date": the date on which
the syndication of the Tranche C Term Loan Facility is completed and the
entities selected in such syndication process become parties to this
Agreement.
"Tranche C Term Loan Lender": each Lender which has made or holds a
Tranche C Term Loan.
"Tranche C Term Loan Percentage": as to any Tranche C Term Loan
Lender at any time, the percentage which such Lender's Tranche C Term Loan
Commitment then constitutes of the aggregate Tranche C Term Loan
Commitments (or, at any time after the Tranche C Term Loan Effective Date,
the percentage which the aggregate amount of such Lender's Tranche C Term
Loans then outstanding constitutes of the aggregate principal amount of
Tranche C Term Loans then outstanding).
(b) Section 1.1 is further amended by deleting the defined terms
"Applicable Margin", "Extended Term Loan Maturity Date", "Term Loan", "Term Loan
Commitment", "Term Loan Facility" and "Term Loan Lender" substituting in lieu
therefor the following new definitions in the appropriate alphabetical order:
"Applicable Margin": for each Type of Loan under each Facility, the
rate per annum set forth opposite such Facility under the relevant column
heading below:
Base Rate Loans Eurodollar Loans
Tranche C Term Loan Facility 1.50% 2.50%
Revolving Credit Facility 2.00% 3.00%;
provided that, (i) with respect to the Revolving Credit Loans, on and
after the Adjustment Date for the quarter ended September 30, 2003, the
Applicable Margin with respect to the Revolving Credit Loans will be
determined pursuant to the Pricing Grid and (ii) with respect to the
Tranche C Term Loans, on and after the Adjustment Date for the quarter
ended March 31, 2004, the Applicable Margin with respect to the Tranche C
Term Loan Loans will be determined pursuant to the Pricing Grid.
"Extended Term Loan Maturity Date": the Extended Tranche C Term Loan
Maturity Date.
"Term Loan": each Tranche C Term Loan.
"Term Loan Commitment": as to any Lender, its Tranche C Term Loan
Commitment.
"Term Loan Facility": the Tranche C Term Loan Commitments and the
Tranche C Term Loans made thereunder.
"Term Loan Lender": each Tranche C Term Loan Lender.
3. Amendment to Section 2.1 of the Credit Agreement (Term Loan
Commitments; Incremental Loans). (a) Section 2.1(a) of the Credit Agreement is
hereby amended by deleting it in its entirety and substituting in lieu therefor
the words "[Intentionally Omitted].".
(b) Section 2.1(b)(i) of the Credit Agreement is hereby amended by
deleting the amount $100,000,000 therein and substituting in lieu therefor the
number $60,000,000.
4. Amendment to Sections 2.2 (Procedure for Term Loan Borrowing)
and 2.3 (Repayment of Term Loans) of the Credit Agreement. Sections 2.2 and 2.3
of the Credit Agreement are hereby amended by deleting them in their entirety
and, in each case, substituting in lieu therefor the words "[Intentionally
Omitted].".
5. Amendment to Section 2.6(a) of the Credit Agreement (Repayment
of Loans; Evidence of Debt). Section 2.6(a) of the Credit Agreement is hereby
amended by
deleting the reference to "Section 2.3" therein and substituting in lieu
therefor a reference to "Section 2.24".
6. Amendment to Section 2 of the Credit Agreement (Amount and
Terms of the Commitments). Section 2 of the Credit Agreement is hereby amended
by adding the following new Section 2.24 in the appropriate numerical order:
2.24 Tranche C Term Loan Facility.
(a) Tranche C Term Loans. Subject to the terms and conditions
hereof, the Tranche C Term Loan Lenders severally agree to make term loans
(each, a "Tranche C Term Loan") to the Borrower on the Tranche C Term Loan
Effective Date for each Tranche C Term Loan Lender not to exceed the
amount of the Tranche C Term Loan Commitment of such Lender. The Tranche C
Term Loans may from time to time be Eurodollar Loans or Base Rate Loans,
as determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.24(b) and 2.11.
(b) Procedure for Tranche C Term Loan Borrowing. The Borrower
shall deliver to the Administrative Agent a Borrowing Notice (which
Borrowing Notice must be received by the Administrative Agent prior to
10:00 A.M., New York City time, at least one Business Day prior to the
anticipated Tranche C Term Loan Effective Date) requesting that the
Tranche C Term Loan Lenders make the Tranche C Term Loans on the Tranche C
Term Loan Effective Date. The Tranche C Term Loans made on the Tranche C
Term Loan Effective Date shall initially be Base Rate Loans, and no
Tranche C Term Loan may be converted into or continued as a Eurodollar
Loan having an Interest Period in excess of one month prior to the date
which is the earlier of (i) 60 days after the Tranche C Term Loan
Effective Date and (ii) the Tranche C Term Loan Facility Syndication Date.
Upon receipt of such Borrowing Notice the Administrative Agent shall
promptly notify each Tranche C Term Loan Lender thereof. Not later than
12:00 Noon, New York City time, on the Tranche C Term Loan Effective Date
each Tranche C Term Loan Lender shall make available to the Administrative
Agent at the Funding Office an amount in immediately available funds equal
to the Tranche C Term Loan or Tranche C Term Loans to be made by such
Lender. The Administrative Agent shall promptly make available to the
Borrower the aggregate of the amounts made available to the Administrative
Agent by the Tranche C Term Loan Lenders, in like funds as received by the
Administrative Agent.
(c) Repayment of Tranche C Term Loans. The Tranche C Term Loan of
each Tranche C Term Loan Lender shall mature in 19 consecutive quarterly
installments, commencing on September 30, 2003, each of which shall be in
an amount equal to such Lender's Tranche C Term Loan Percentage multiplied
by the amount set forth below opposite such installment:
Installment Principal Amount
September 30, 2003 $412,500
December 31, 2003 $412,500
March 31, 2004 $412,500
June 30, 2004 $412,500
September 30, 2004 $412,500
December 31, 2004 $412,500
March 31, 2005 $412,500
June 30, 2005 $412,500
September 30, 2005 $412,500
December 31, 2005 $412,500
March 31, 2006 $412,500
June 30, 2006 $412,500
September 30, 2006 $412,500
December 31, 2006 $412,500
March 31, 2007 $412,500
June 30, 2007 $39,703,125
September 30, 2007 $39,703,125
December 31, 2007 $39,703,125
March 31, 2008 $39,703,125
provided that, if the Borrower amends or refinances its 9 5/8% Series B
Senior Subordinated Notes due 2008 and 8 1/2% Series B Senior Subordinated
Notes due 2008, on or prior to May 31, 2007 such that no principal payment
is due under such securities prior to September 30, 2009 and at the time
of such amendment or refinancing, no Default or Event of Default has
occurred and is continuing, then the final maturity date of the Tranche C
Term Loans shall be March 31, 2009 (the "Extended Tranche C Term Loan
Maturity Date") and the amount to be repaid for the period beginning April
2007 until the Extended Tranche C Term Loan Maturity Date shall be as
follows:
Installment Principal Amount
June 30, 2007 $412,500
September 30, 2007 $412,500
December 31, 2007 $412,500
March 31, 2008 $412,500
June 30, 2008 $39,290,625
September 30, 2008 $39,290,625
December 31, 2008 $39,290,625
March 31, 2009 $39,290,625
7. Amendment to Section 2.10 of the Credit Agreement (Mandatory
Prepayments). Section 2.10 of the Credit Agreement is hereby amended by
inserting the following new paragraph (d) in the appropriate order:
(d) If the 9 5/8% Redemption of the Redeemed 9 5/8% Notes has not
occurred prior to the date which is 45 days after the Tranche C Term Loan
Effective Date, then, on such 45th day, the Term Loans shall be prepaid by
an amount equal to the excess of $165,000,000 minus the amount of the
Tranche C Term Loans used to finance the August 2003 Term Loan Refinancing
and to pay related fees and expenses.
8. Amendment to Section 4.1 of the Credit Agreement (Financial
Condition). Section 4.1 of the Credit Agreement is hereby amended by inserting
the following new paragraph (c) in the appropriate order:
(c) The unaudited pro forma consolidated balance sheet of the
Parent and its consolidated Subsidiaries as at June 30, 2003 (including
the notes thereto) (the "Tranche C Term Loan Pro Forma Balance Sheet"),
copies of which have heretofore been furnished to each Tranche C Term Loan
Lender, has been prepared giving effect (as if such events had occurred on
such date) to (i) the consummation of the August 2003 Term Loan
Refinancing and the 9 5/8% Redemption, (ii) the Loans to be made on the
Tranche C Term Loan Effective Date and the use of proceeds thereof and
(iii) the payment of fees and expenses in connection with the foregoing.
The Tranche C Term Loan Pro Forma Balance Sheet has been prepared based on
the best information available to the Parent as of the date of delivery
thereof, and presents fairly in all material respects on a pro forma basis
the estimated financial position of the Parent and its consolidated
Subsidiaries as at June 30, 2003, assuming that the events specified in
the preceding sentence had actually occurred at such date.
9. Amendment to Section 4.16 of the Credit Agreement (Use of
Proceeds). Section 4.16 of the Credit Agreement is hereby amended by deleting
the first sentence thereof and by adding to the end of such Section the
following: "The proceeds of the Tranche C Term Loans shall be used to finance
the August 2003 Term Loan Refinancing and the 9 5/8% Redemption and to pay
related fees and expenses in connection therewith."
10. Amendment to Section 7.9 of the Credit Agreement (Limitation
on Optional Payments and Modifications of Debt Instruments). (a) Section 7.9(a)
of the Credit Agreement is hereby amended by deleting the words "(x) the
Borrower may pay, prepay, repurchase, redeem or defease up to $50,000,000 of
such Senior Subordinated Notes at any time and from time to time, and, (y) the
Borrower may also" and substitute in lieu therefor the words "at any time after
the Tranche C Term Loan Effective Date, the Borrower may".
(b) Section 7.9(b) is hereby amended by deleting the reference to
"Section 2.3" therein and substituting in lieu therefor a reference to "Section
2.24".
11. Amendment to Section 10.17 of the Credit Agreement (Delivery
of Lender Addenda). Section 10.17 of the Credit Agreement is hereby amended by
adding (a) a paragraph lettering "(a)" in front of the existing paragraph
therein and (b) the following new paragraph (b) at the end thereof:
(b) Each Tranche C Term Loan Lender shall become a party to
this Agreement by delivering to the Administrative Agent a Lender Addendum
duly executed by such Lender, the Borrower and the Administrative Agent.
12. Amendment to Annex A of the Credit Agreement (Pricing Grid).
Annex A to the Credit Agreement is hereby amended by deleting it in its entirety
and substituting in lieu therefor, the following new Annex A, attached as
Exhibit A hereto.
13. Waiver to Section 7.9 of the Credit Agreement (Limitation on
Optional Payments and Modifications of Debt Instruments). Compliance with
Section 7.9(a) of the Credit Agreement is hereby waived to the extent necessary
to permit the 9 5/8% Redemption.
14. Conditions to Effectiveness and the Tranche C Term Loans. This
Amendment shall become effective on the date on which all of the following
conditions precedent have been satisfied or waived (the "Tranche C Term Loan
Effective Date"), and the agreement of each Tranche C Term Loan Lender to make
the Tranche C Term Loan requested to be made by it is also subject to the
satisfaction, prior to or concurrently with the making of such extension of
credit, on the Tranche C Term Loan Effective Date, of the following conditions
precedent:
(a) The Administrative Agent shall have received five counterparts
of this Amendment duly executed and delivered by the Parent, Holdings and the
Borrower.
(b) The Administrative Agent shall have received executed Lender
Consent Letters, substantially in the form of Exhibit B hereto ("Lender Consent
Letters"), from Lenders constituting not less than the Required Prepayment
Lenders (as defined in the Credit Agreement without giving effect to this
Amendment).
(c) The Administrative Agent shall have received a Lender Addendum
executed and delivered by each Tranche C Term Loan Lender and accepted by the
Borrower.
(d) The Administrative Agent shall have received an executed
Acknowledgment and Consent, in the form of Exhibit C hereto (the "Acknowledgment
and Consent"), from the Guarantors.
(e) The Administrative Agent shall have received duly executed and
delivered amendments to the Mortgages necessary or desirable to reflect the
addition of the Tranche C Term Loan Facility and the Tranche C Term Loans.
(f) The Administrative Agent shall have received satisfactory
evidence that on the Tranche C Term Loan Effective Date the Borrower, upon
receipt of the proceeds of the Tranche C Term Loan, will issue irrevocable
notice redeeming the Redeemed 9 5/8% Notes pursuant to the terms of the Senior
Subordinated Note Indentures related to the Redeemed 9 5/8% Notes and the
redemption date of the Redeemed 9 5/8% Notes set forth in such notice shall be
on or prior to the date that is 40 days after the Tranche C Term Loan Effective
Date.
(g) The Tranche C Term Loan Lenders shall have received the
Tranche C Term Loan Pro Forma Balance Sheet.
(h) The Administrative Agent shall have received all fees required
to be paid, and all expenses for which invoices have been presented supported by
customary documentation (including reasonable fees, disbursements and other
charges of counsel to the Agents), on or before the Tranche C Term Loan
Effective Date. All such amounts will be paid with proceeds of Tranche C Term
Loans made on the Tranche C Term Loan Effective Date and will be reflected in
the funding instructions given by the Borrower to the Administrative Agent on or
before the Tranche C Term Loan Effective Date.
(i) On or before the Tranche C Term Loan Effective Date, all
corporate and other proceedings taken or to be taken in connection with this
Amendment shall be reasonably satisfactory in form and substance to
Administrative Agent and its counsel, and Administrative Agent and such counsel
shall have received all such counterpart originals or certified copies of such
documents as Administrative Agent may reasonably request.
(j) The Administrative Agent shall have received a certificate of
the Borrower, dated the Tranche C Term Loan Effective Date, in form and
substance reasonably satisfactory to the Administrative Agent.
(k) The Administrative Agent shall have received the legal opinion
of Akin Gump Strauss Hauer & Feld LLP, counsel to the Loan Parties, in form and
substance reasonably satisfactory to the Administrative Agent.
(l) All material governmental and third party approvals necessary
in connection with the Tranche C Term Loan Facility, the continuing operations
of the Parent, Holdings, the Borrower and its Restricted Subsidiaries and the
transactions contemplated hereby shall have been obtained and be in full force
and effect.
15. Representations and Warranties. The Borrower hereby represents
and warrants to Administrative Agent and each Lender that (before and after
giving effect to this Amendment):
(a) Each Loan Party has the corporate power and authority, and the
legal right, to make, deliver and perform this Amendment and the Acknowledgment
and Consent (the "Amendment Documents") to which it is a party and, in the case
of the Borrower, to borrow under the Credit Agreement as amended hereby. Each
Loan Party has taken all necessary corporate or other action to authorize the
execution, delivery and performance of the Amendment Documents to which it is a
party and, in the case of the Borrower, to authorize the borrowings on the terms
and conditions of the Credit Agreement as amended by this Amendment (the
"Amended Credit Agreement"). No consent or authorization of, filing with, notice
to or other act by or in respect of, any Governmental Authority or any other
Person is required in connection with the Amendment Documents, the borrowings
under the Amended Credit Agreement or the execution, delivery, performance,
validity or enforceability of this Amendment or the Acknowledgment and Consent,
except (i) consents, authorizations, filings and notices which have been
obtained or made and are in full force and effect and (ii) the filings referred
to in Section 4.19 of the Credit Agreement. Each Amendment Document has been
duly executed and delivered on behalf of each Loan Party that is a party
thereto. Each Amendment Document and the Amended Credit Agreement constitutes a
legal, valid and binding obligation of each Loan
Party that is a party thereto, enforceable against each such Loan Party in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
(b) The execution, delivery and performance of the Amendment
Documents, the borrowings under the Amended Credit Agreement and the use of the
proceeds thereof will not violate any Requirement of Law or any material
Contractual Obligation of the Parent, Holdings, the Borrower or any of its
Restricted Subsidiaries and will not result in, or require, the creation or
imposition of any Lien on any of their respective properties or revenues
pursuant to any Requirement of Law or any such Contractual Obligation (other
than the Liens created by the Security Documents).
(c) Each of the representations and warranties made by any Loan
Party herein or in or pursuant to the Loan Documents is true and correct in all
material respects on and as of the Tranche C Term Loan Effective Date as if made
on and as of such date (except that any representation or warranty which by its
terms is made as of an earlier date shall be true and correct in all material
respects as of such earlier date).
(d) The Borrower and the other Loan Parties have performed in all
material respects all agreements and satisfied all conditions which this
Amendment and the other Loan Documents provide shall be performed or satisfied
by the Borrower or the other Loan Parties on or before the Tranche C Term Loan
Effective Date.
(e) After giving effect to this Amendment, the August 2003 Term
Loan Refinancing and the 9 5/8% Redemption, no Default or Event of Default has
occurred and is continuing, or will result from the consummation of the
transactions contemplated by this Amendment.
16. Payment of Expenses. The Borrower agrees to pay or reimburse
the Administrative Agent for all of its reasonable out-of-pocket costs and
expenses incurred in connection with this Amendment, any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the Administrative Agent.
17. No Other Amendments or Waivers; Confirmation. Except as
expressly provided hereby, all of the terms and provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force and
effect. The amendment and waiver contained herein shall not be construed as an
amendment or waiver of any other provision of the Credit Agreement or the other
Loan Documents or for any purpose except as expressly set forth herein or a
consent to any further or future action on the part of the Borrower that would
require the waiver or consent of the Administrative Agent or the Lenders.
18. GOVERNING LAW; Miscellaneous. (a) THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
(b) On and after the Tranche C Term Loan Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein", or words of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof", or words of like import referring to the Credit Agreement shall mean
and be a reference to the Amended Credit Agreement.
(c) This Amendment may be executed by one or more of the parties
to this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment, the Acknowledgment and
Consent and the Lender Consent Letters signed by all the parties shall be lodged
with the Borrower and the Administrative Agent. This Amendment may be delivered
by facsimile transmission of the relevant signature pages hereof.
(d) The execution and delivery of the Lender Consent Letter by any
Lender shall be binding upon each of its successors and assigns (including
assignees of its Loans in whole or in part prior to effectiveness hereof).
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
CINEMARK, INC.
By: /s/Michael Cavalier
Name: Michael Cavalier
Title: Secretary
CNMK HOLDING, INC.
By: /s/Michael Cavalier
Name: Michael Cavalier
Title: Vice President
CINEMARK USA, INC.
By: /s/Robert Copple
Name: Robert Copple
Title: Senior Vice President-CFO
BANK OF AMERICA, N.A., as Syndication Agent
By: /s/ Michael Pavell
Name: Michael Pavell
Title: Principal
LEHMAN COMMERCIAL PAPER INC., as
Administrative Agent
By: /s/G. Robert Berzins
Name: G. Robert Berzins
Title: Vice President
EXHIBIT 31.1
CEO CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES - OXLEY ACT OF 2002
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 officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, 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 and presented in this quarterly
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such
evaluation; and
c) disclosed in this quarterly report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 14, 2003
CINEMARK USA, INC.
By: /s/ Lee Roy Mitchell
Lee Roy Mitchell
Chief Executive Officer
EXHIBIT 31.2
CFO CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES - OXLEY ACT OF 2002
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 officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, 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 and presented in this quarterly
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this quarterly report based on such
evaluation; and
c) disclosed in this quarterly report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 14, 2003
CINEMARK USA, INC.
By: /s/ Robert Copple
Robert Copple
Chief Financial Officer
EXHIBIT 32.1
CEO CERTIFICATION
PURSUANT TO SECTION 906 OF THE
SARBANES - OXLEY ACT OF 2002
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 September 30, 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: November 14, 2003
/s/ Lee Roy Mitchell
Lee Roy Mitchell
Chief Executive Officer
Subscribed and sworn to before me this 14th day of November 2003.
/s/ Carol Waldman
Name: Carol Waldman
Title: Notary Public
My commission expires: 06/07/04
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CFO CERTIFICATION
PURSUANT TO SECTION 906 OF THE
SARBANES - OXLEY ACT OF 2002
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 September 30, 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: November 14, 2003
/s/ Robert Copple
Robert Copple
Chief Financial Officer
Subscribed and sworn to before me this 14th day of November 2003.
/s/ Carol Waldman
Name: Carol Waldman
Title: Notary Public
My commission expires: 06/07/04
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.