Attached files
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EX-32.1 - EX-32.1 - Cinemark Holdings, Inc. | d74962exv32w1.htm |
EX-32.2 - EX-32.2 - Cinemark Holdings, Inc. | d74962exv32w2.htm |
EX-31.1 - EX-31.1 - Cinemark Holdings, Inc. | d74962exv31w1.htm |
EX-31.2 - EX-31.2 - Cinemark Holdings, Inc. | d74962exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
Commission File Number: 001-33401
CINEMARK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
20-5490327 (I.R.S. Employer Identification No.) |
3900 Dallas Parkway Suite 500 Plano, Texas (Address of principal executive offices) |
75093 (Zip Code) |
Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
As of July 31, 2010, 113,427,422 shares of common stock were outstanding.
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
TABLE OF CONTENTS
2
Table of Contents
Cautionary Statement Regarding Forward-Looking Statements
Certain matters within this Quarterly Report on Form 10Q include forwardlooking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements included in this Form 10Q, other than
statements of historical fact, may constitute forward-looking statements. Forward-looking
statements can be identified 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. Forward-looking statements may involve known and
unknown risks, uncertainties and other factors that may cause the actual results or performance to
differ from those projected in the 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. For a description of the
risk factors, please review the Risk Factors section or other sections in the Companys Annual
Report on Form 10-K filed March 10, 2010 and quarterly reports on Form 10-Q, filed with the
Securities and Exchange Commission. All forward-looking statements are expressly qualified in their
entirety by such risk factors. We undertake no obligation, other than as required by law, to update
or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
3
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)
(in thousands, except share data, unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 435,770 | $ | 437,936 | ||||
Inventories |
10,302 | 9,854 | ||||||
Accounts receivable |
40,638 | 33,110 | ||||||
Income tax receivable |
13,961 | 13,025 | ||||||
Current deferred tax asset |
3,289 | 3,321 | ||||||
Prepaid expenses and other |
9,453 | 10,051 | ||||||
Total current assets |
513,413 | 507,297 | ||||||
Theatre properties and equipment |
1,948,064 | 1,936,535 | ||||||
Less accumulated depreciation and amortization |
763,810 | 716,947 | ||||||
Theatre properties and equipment net |
1,184,254 | 1,219,588 | ||||||
Other assets |
||||||||
Goodwill |
1,114,343 | 1,116,302 | ||||||
Intangible assets net |
339,210 | 342,998 | ||||||
Investment in NCM |
64,283 | 34,232 | ||||||
Investment in DCIP |
13,469 | 640 | ||||||
Investment in Real D |
6,521 | | ||||||
Investments in and advances to affiliates |
3,849 | 2,889 | ||||||
Deferred charges and other assets net |
65,809 | 52,502 | ||||||
Total other assets |
1,607,484 | 1,549,563 | ||||||
Total assets |
$ | 3,305,151 | $ | 3,276,448 | ||||
Liabilities and equity |
||||||||
Current liabilities |
||||||||
Current portion of long-term debt |
$ | 11,112 | $ | 12,227 | ||||
Current portion of capital lease obligations |
7,344 | 7,340 | ||||||
Current liability for uncertain tax positions |
2,652 | 13,229 | ||||||
Accounts payable and accrued expenses |
229,338 | 248,036 | ||||||
Total current liabilities |
250,446 | 280,832 | ||||||
Long-term liabilities |
||||||||
Long-term debt, less current portion |
1,526,805 | 1,531,478 | ||||||
Capital lease obligations, less current portion |
131,680 | 133,028 | ||||||
Deferred tax liability |
110,339 | 124,823 | ||||||
Liability for uncertain tax positions |
15,753 | 18,432 | ||||||
Deferred lease expenses |
29,359 | 27,698 | ||||||
Deferred revenue NCM |
232,212 | 203,006 | ||||||
Other long-term liabilities |
48,623 | 42,523 | ||||||
Total long-term liabilities |
2,094,771 | 2,080,988 | ||||||
Commitments and contingencies (see Note 20) |
||||||||
Equity |
||||||||
Cinemark Holdings, Inc.s stockholders equity: |
||||||||
Common stock, $0.001 par value: 300,000,000 shares authorized, 116,787,281 shares issued and 113,427,422 shares
outstanding at June 30, 2010; and 114,222,523 shares issued and 110,917,105 shares
outstanding at December 31, 2009 |
117 | 114 | ||||||
Additional paid-in-capital |
1,029,671 | 1,011,667 | ||||||
Treasury stock, 3,359,859 and 3,305,418 shares, at cost, at June 30, 2010 and December 31, 2009, respectively |
(44,725 | ) | (43,895 | ) | ||||
Retained deficit |
(26,237 | ) | (60,595 | ) | ||||
Accumulated other comprehensive loss |
(10,370 | ) | (7,459 | ) | ||||
Total Cinemark Holdings, Inc.s stockholders equity |
948,456 | 899,832 | ||||||
Noncontrolling interests |
11,478 | 14,796 | ||||||
Total equity |
959,934 | 914,628 | ||||||
Total liabilities and equity |
$ | 3,305,151 | $ | 3,276,448 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
Table of Contents
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, unaudited)
(in thousands, unaudited)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
||||||||||||||||
Admissions |
$ | 353,085 | $ | 339,088 | $ | 696,075 | $ | 618,971 | ||||||||
Concession |
165,230 | 158,926 | 318,334 | 288,957 | ||||||||||||
Other |
21,054 | 19,494 | 41,591 | 35,380 | ||||||||||||
Total revenues |
539,369 | 517,508 | 1,056,000 | 943,308 | ||||||||||||
Cost of operations |
||||||||||||||||
Film rentals and advertising |
193,550 | 190,826 | 382,369 | 337,952 | ||||||||||||
Concession supplies |
24,494 | 24,027 | 46,900 | 43,744 | ||||||||||||
Salaries and wages |
56,250 | 52,070 | 108,792 | 96,420 | ||||||||||||
Facility lease expense |
61,990 | 59,195 | 124,705 | 114,933 | ||||||||||||
Utilities and other |
57,648 | 54,168 | 112,869 | 102,896 | ||||||||||||
General and administrative expenses |
24,946 | 23,675 | 50,476 | 45,463 | ||||||||||||
Depreciation and amortization |
34,657 | 37,535 | 68,590 | 73,668 | ||||||||||||
Amortization of favorable/unfavorable leases |
258 | 346 | 416 | 669 | ||||||||||||
Impairment of long-lived assets |
4,688 | 3,930 | 5,035 | 4,969 | ||||||||||||
Loss on sale of assets and other |
1,191 | 1,186 | 4,358 | 1,458 | ||||||||||||
Total cost of operations |
459,672 | 446,958 | 904,510 | 822,172 | ||||||||||||
Operating income |
79,697 | 70,550 | 151,490 | 121,136 | ||||||||||||
Other income (expense) |
||||||||||||||||
Interest expense |
(28,605 | ) | (25,649 | ) | (54,615 | ) | (51,113 | ) | ||||||||
Interest income |
1,380 | 937 | 2,433 | 2,769 | ||||||||||||
Foreign currency exchange gain |
348 | 472 | 80 | 538 | ||||||||||||
Loss on early retirement of debt |
| (26,795 | ) | | (26,795 | ) | ||||||||||
Distributions from NCM |
1,332 | 5,027 | 11,278 | 11,606 | ||||||||||||
Equity in loss of affiliates |
(3,182 | ) | (415 | ) | (3,155 | ) | (1,020 | ) | ||||||||
Total other expense |
(28,727 | ) | (46,423 | ) | (43,979 | ) | (64,015 | ) | ||||||||
Income before income taxes |
50,970 | 24,127 | 107,511 | 57,121 | ||||||||||||
Income taxes |
10,211 | 4,320 | 30,041 | 18,963 | ||||||||||||
Net income |
$ | 40,759 | $ | 19,807 | $ | 77,470 | $ | 38,158 | ||||||||
Less: Net income attributable to noncontrolling
interests |
1,077 | 1,137 | 2,695 | 1,923 | ||||||||||||
Net income attributable to Cinemark Holdings, Inc. |
$ | 39,682 | $ | 18,670 | $ | 74,775 | $ | 36,235 | ||||||||
Weighted average shares outstanding |
||||||||||||||||
Basic |
111,207 | 108,483 | 110,879 | 108,473 | ||||||||||||
Diluted |
111,552 | 110,266 | 111,299 | 109,922 | ||||||||||||
Earnings per share attributable to Cinemark Holdings, Inc.s common stockholders | ||||||||||||||||
Basic |
$ | 0.35 | $ | 0.17 | $ | 0.67 | $ | 0.33 | ||||||||
Diluted |
$ | 0.35 | $ | 0.17 | $ | 0.67 | $ | 0.33 | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Table of Contents
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
(in thousands, unaudited)
Six months ended June 30, | ||||||||
2010 | 2009 | |||||||
Operating activities |
||||||||
Net income |
$ | 77,470 | $ | 38,158 | ||||
Adjustments to reconcile net income to cash provided by (used for) operating activities: |
||||||||
Depreciation |
66,378 | 71,678 | ||||||
Amortization of intangible and other assets and unfavorable leases |
2,628 | 2,659 | ||||||
Amortization of long-term prepaid rents |
779 | 750 | ||||||
Amortization of debt issue costs |
2,357 | 2,399 | ||||||
Amortization of deferred revenues, deferred lease incentives and other |
(3,005 | ) | (2,167 | ) | ||||
Amortization of accumulated other comprehensive loss related to interest rate swap agreement |
2,317 | 2,317 | ||||||
Amortization of bond discount |
381 | | ||||||
Impairment of long-lived assets |
5,035 | 4,969 | ||||||
Share based awards compensation expense |
3,254 | 2,403 | ||||||
Loss on sale of assets and other |
2,325 | 1,458 | ||||||
Loss on contribution and sale of digital projection systems to DCIP |
2,033 | | ||||||
Write-off of unamortized debt issue costs related to early retirement of debt |
| 6,089 | ||||||
Accretion of interest on senior discount notes |
| 8,085 | ||||||
Deferred lease expenses |
1,697 | 2,121 | ||||||
Deferred income tax expenses |
(14,176 | ) | (16,734 | ) | ||||
Equity in loss of affiliates |
3,155 | 1,020 | ||||||
Interest paid on repurchased senior discount notes |
| (151,952 | ) | |||||
Tax benefit related to stock option exercises |
1,904 | | ||||||
Increase in deferred revenue related to new U.S. beverage agreement |
| 6,550 | ||||||
Distributions from equity investees |
2,059 | 1,078 | ||||||
Changes in assets and liabilities |
(48,453 | ) | 8,384 | |||||
Net cash provided by (used for) operating activities |
108,138 | (10,735 | ) | |||||
Investing activities |
||||||||
Additions to theatre properties and equipment |
(56,960 | ) | (60,918 | ) | ||||
Proceeds from sale of theatre properties and equipment |
2,148 | 653 | ||||||
Acquisition of theatres in the U.S. |
| (48,950 | ) | |||||
Investment in joint venture DCIP, net of cash distributions |
(644 | ) | (1,500 | ) | ||||
Net cash used for investing activities |
(55,456 | ) | (110,715 | ) | ||||
Financing activities |
||||||||
Proceeds from stock option exercises |
5,482 | 206 | ||||||
Payroll taxes paid as a result of noncash stock option exercises and restricted stock withholdings |
(416 | ) | | |||||
Dividends paid to stockholders |
(40,255 | ) | (39,269 | ) | ||||
Repurchase of senior discount notes |
| (250,507 | ) | |||||
Proceeds from issuance of senior notes |
| 458,532 | ||||||
Payment of debt issue costs |
(8,706 | ) | (12,423 | ) | ||||
Repayments of long-term debt |
(6,136 | ) | (6,289 | ) | ||||
Payments on capital leases |
(3,606 | ) | (2,830 | ) | ||||
Other |
(110 | ) | (795 | ) | ||||
Net cash provided by (used for) financing activities |
(53,747 | ) | 146,625 | |||||
Effect of exchange rate changes on cash and cash equivalents |
(1,101 | ) | 7,959 | |||||
Increase (decrease) in cash and cash equivalents |
(2,166 | ) | 33,134 | |||||
Cash and cash equivalents: |
||||||||
Beginning of period |
437,936 | 349,603 | ||||||
End of period |
$ | 435,770 | $ | 382,737 | ||||
Supplemental information (See Note 16) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
Table of Contents
CINEMARK
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In thousands, except share and per share data
1. The Company and Basis of Presentation
Cinemark Holdings, Inc. and subsidiaries (the Company) is a leader in the motion picture
exhibition industry, with theatres in the United States (U.S.), Canada, Brazil, Mexico, Chile,
Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Guatemala. The Company also managed additional theatres in the U.S., Brazil, and Colombia during
the six months ended June 30, 2010.
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 of a recurring
nature necessary to state fairly the financial position and results of operations as of, and for,
the periods indicated. Majority-owned subsidiaries that the Company has control of are consolidated
while those affiliates of which the Company owns between 20% and 50% and does not control are
accounted for under the equity method. Those affiliates of which the Company owns less than 20% are
generally accounted for under the cost method, unless the Company is deemed to have the ability to
exercise significant influence over the affiliate, in which case the Company would account for its
investment under the equity 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. Intercompany balances and transactions are eliminated in consolidation.
These condensed consolidated financial statements should be read in conjunction with the
audited annual consolidated financial statements and the notes thereto for the year ended December
31, 2009, included in the Annual Report on Form 10-K filed March 10, 2010 by the Company under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Operating results for the six
months ended June 30, 2010, are not necessarily indicative of the results to be achieved for the
full year.
2. New Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) FAS 107-1 and APB 28-1 (FASB ASC Topic 825) Interim Disclosures about Fair Value of
Financial Instruments. FSP FAS 107-1 and APB 28-1 (FASB ASC Topic 825) require that disclosures
about the fair value of financial instruments be included in the notes to financial statements
issued during interim periods. Fair value information must be presented in the notes to financial
statements together with the carrying amounts of the financial instruments. It must be clearly
stated whether the amounts are assets or liabilities and how they relate to information presented
in the balance sheet. The disclosures must include methods and significant assumptions used to
estimate fair values, along with any changes in those methods and assumptions from prior periods.
FSP FAS 107-1 and APB 28-1 (FASB ASC Topic 825) were effective for interim and annual periods
ending after June 15, 2009, with early adoption permitted. Upon adoption of FSP FAS 107-1 and APB
28-1(FASB ASC Topic 825), the Company added a disclosure regarding the fair value of its long-term
debt (see Note 11). Below is a summary of the Companys financial instruments:
June 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
Debt (see Note 11) |
$ | (1,537,917 | ) | $ | (1,516,184 | ) | $ | (1,543,705 | ) | $ | (1,513,838 | ) | ||||
Interest rate swap agreements (see Note 12) |
$ | (19,257 | ) | $ | (19,257 | ) | $ | (18,524 | ) | $ | (18,524 | ) |
In May 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 165
(FASB ASC Topic 855), Subsequent Events. SFAS No. 165 (FASB ASC Topic 855) should not result in
significant changes in the subsequent events that an entity reports. Rather, SFAS No. 165 (FASB ASC
Topic 855) introduced the concept of financial statements that are available to be issued.
Financial statements are considered available to be issued when they are complete in a form and
format that complies with generally accepted accounting principles and all approvals necessary for
issuance have been obtained. SFAS No. 165 (FASB ASC Topic 855) was effective for
interim or annual financial periods ending after June 15, 2009. The adoption of SFAS No. 165
(FASB ASC Topic 855) did not have a significant impact on the Companys condensed consolidated
financial statements.
7
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
In June 2009, the FASB issued SFAS No. 168 (FASB ASC Topic 105), The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles", which
authorizes the Codification as the sole source for authoritative generally accepted accounting
principles in the U.S. (U.S. GAAP). SFAS No. 168 (FASB ASC Topic 105) was effective for financial
statements issued for reporting periods that end after September 15, 2009. SFAS No. 168 (FASB ASC
Topic 105) supersedes all accounting standards in U.S. GAAP, aside from those issued by the SEC.
SFAS No. 168 (FASB ASC Topic 105) replaced SFAS No. 162 to establish a new hierarchy of GAAP
sources for non-governmental entities under the FASB Accounting Standards Codification. The
adoption of SFAS No. 168 (FASB ASC Topic 105) did not have a significant impact on the Companys
condensed consolidated financial statements.
In December 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-17,
Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities. ASU No. 2009-17 changes how a reporting entity determines when an
entity that is insufficiently capitalized or is not controlled through voting (or similar rights)
should be consolidated. The determination of whether a reporting entity is required to consolidate
another entity is based on, among other things, the other entitys purpose and design and the
reporting entitys ability to direct the activities of the other entity that most significantly
impact the other entitys economic performance. ASU No. 2009-17 requires a reporting entity to
provide additional disclosures about its involvement with variable interest entities and any
significant changes in risk exposure due to that involvement. A reporting entity is required to
disclose how its involvement with a variable interest entity affects the reporting entitys
financial statements. ASU No. 2009-17 is effective for fiscal years beginning after November 15,
2009, and interim periods within those fiscal years. The Company adopted ASU No. 2009-17 as of
January 1, 2010, and its application had no impact on the Companys condensed consolidated
financial statements.
In January 2010, the FASB issued FASB ASU 2010-06, Fair Value Measurements and Disclosures:
Improving Disclosures about Fair Value Measurements (ASU 2010-06), which amends FASB ASC Topic
820-10, Fair Value Measurements and Disclosures". The update requires additional disclosures for
transfers in and out of Levels 1 and 2 and for activity in Level 3 and clarifies certain other
existing disclosure requirements. The Company adopted ASU 2010-06 beginning January 1, 2010. This
update did not have a significant impact on the Companys disclosures.
8
Table of Contents
CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
3. Earnings Per Share
The Company considers its unvested share based payment awards, which contain non-forfeitable
rights to dividends, participating securities, and includes such participating securities in its
computation of earnings per share pursuant to the two-class method. Basic earnings per share for
the two classes of stock (common stock and unvested restricted stock) is calculated by dividing net
income by the weighted average number of shares of common stock and unvested restricted stock
outstanding during the reporting period. Diluted earnings per share is calculated using the
weighted average number of shares of common stock and unvested restricted stock plus the
potentially dilutive effect of common equivalent shares outstanding determined under both the two
class method and the treasury stock method. For the three and six months ended June 30, 2009 and
the six months ended June 30, 2010, basic earnings per share were the same under both the two class
method and the treasury stock method. For the three months ended June 30, 2010, basic earnings per
share was $0.35 under the two class method compared to $0.36 under the treasury stock method. For
the three and six months ended June 30, 2010 and 2009, diluted earnings per share were the same
under both the two class method and the treasury stock method.
The following table presents computations of basic and diluted earnings per share under the
two class method:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator: |
||||||||||||||||
Net income attributable to Cinemark Holdings, Inc. |
$ | 39,682 | $ | 18,670 | $ | 74,775 | $ | 36,235 | ||||||||
Earnings allocated to participating share-based awards (1) |
(425 | ) | (129 | ) | (600 | ) | (185 | ) | ||||||||
Net income attributable to common stockholders |
$ | 39,257 | $ | 18,541 | $ | 74,175 | $ | 36,050 | ||||||||
Denominator (shares in thousands): |
||||||||||||||||
Basic weighted average common stock outstanding |
111,207 | 108,483 | 110,879 | 108,473 | ||||||||||||
Common equivalent shares for stock options |
200 | 1,744 | 266 | 1,428 | ||||||||||||
Common equivalent shares for restricted stock units |
145 | 39 | 154 | 21 | ||||||||||||
Diluted |
111,552 | 110,266 | 111,299 | 109,922 | ||||||||||||
Basic earnings per share attributable to common stockholders |
$ | 0.35 | $ | 0.17 | $ | 0.67 | $ | 0.33 | ||||||||
Diluted earnings per share attributable to common stockholders |
$ | 0.35 | $ | 0.17 | $ | 0.67 | $ | 0.33 | ||||||||
(1) | For the three months ended June 30, 2010 and 2009, a weighted average of approximately 1,206 and 754 shares of unvested restricted stock, respectively, are considered participating securities. For the six months ended June 30, 2010 and 2009, a weighted average of approximately 898 and 559 shares of unvested restricted stock, respectively, are considered participating securities. |
4. Buyout of Colombia Noncontrolling Interest
During April 2010, the Companys partners in Colombia (the Colombian Partners) exercised an
option available to them under an Exchange Option Agreement dated April 9, 2007 between the Company
and the Colombian Partners (the Exchange Option Agreement). Under this option, which was
contingent upon completion of an initial public offering of common stock by the Company, the
Colombian Partners were entitled to exchange their shares in Cinemark Colombia S.A. for shares of
the Companys common stock (the Colombia Share Exchange). The number of shares to be exchanged
was determined based on the Companys equity value and the equity value of the Colombian Partners
interest in Cinemark Colombia S.A., both of which are defined in the Exchange Option Agreement. As
a result of the Colombia Share Exchange, on June 14, 2010, the Company issued 1,112,723 shares of
its common stock to the Colombian Partners. The increase in the Companys ownership interest in its
Colombian subsidiary was accounted for as an equity transaction. The Company recorded an increase
in additional-paid-in-capital of approximately $6,951, which represented the book value of the
Colombian partners noncontrolling interest account of approximately $5,865 plus the Colombian
partners share of accumulated other comprehensive loss of approximately $1,086. As a result of
this transaction, the Company now owns 100% of the shares in Cinemark Colombia S.A.
9
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
5. Equity
Below is a summary of changes in stockholders equity attributable to Cinemark Holdings, Inc.,
noncontrolling interests and total equity for the six months ended June 30, 2010 and 2009:
Cinemark | ||||||||||||
Holdings, Inc. | ||||||||||||
Stockholders | Noncontrolling | Total | ||||||||||
Equity | Interests | Equity | ||||||||||
Balance at January 1, 2010 |
$ | 899,832 | $ | 14,796 | $ | 914,628 | ||||||
Colombia Share Exchange (see Note 4) |
5,865 | (5,865 | ) | | ||||||||
Share based awards compensation expense |
3,254 | | 3,254 | |||||||||
Stock repurchases related to restricted stock that vested during the six months ended June 30, 2010 |
(299 | ) | | (299 | ) | |||||||
Exercise of stock options, net of stock withholdings |
5,367 | | 5,367 | |||||||||
Tax benefit related to stock option exercises |
1,904 | | 1,904 | |||||||||
Dividends paid to stockholders (1) |
(40,255 | ) | | (40,255 | ) | |||||||
Dividends accrued on unvested restricted stock unit awards (1) |
(162 | ) | | (162 | ) | |||||||
Dividends paid to noncontrolling interests |
| (110 | ) | (110 | ) | |||||||
Comprehensive income: |
||||||||||||
Net income |
74,775 | 2,695 | 77,470 | |||||||||
Fair value adjustments on interest rate swap agreements, net of taxes of $276 |
(456 | ) | | (456 | ) | |||||||
Amortization of accumulated other comprehensive loss on terminated swap agreement |
2,317 | | 2,317 | |||||||||
Foreign currency translation adjustment |
(3,686 | ) | (38 | ) | (3,724 | ) | ||||||
Balance at June 30, 2010 |
$ | 948,456 | $ | 11,478 | $ | 959,934 | ||||||
Cinemark | ||||||||||||
Holdings, Inc. | ||||||||||||
Stockholders | Noncontrolling | Total | ||||||||||
Equity | Interests | Equity | ||||||||||
Balance at January 1, 2009 |
$ | 811,256 | $ | 12,971 | $ | 824,227 | ||||||
Share based awards compensation expense |
2,403 | | 2,403 | |||||||||
Exercise of stock options |
206 | | 206 | |||||||||
Dividends paid to stockholders (2) |
(39,269 | ) | | (39,269 | ) | |||||||
Dividends accrued on unvested restricted stock unit awards (2) |
(85 | ) | | (85 | ) | |||||||
Dividends paid to noncontrolling interests |
| (700 | ) | (700 | ) | |||||||
Purchase of noncontrolling interest share of an Argentina subsidiary |
23 | (117 | ) | (94 | ) | |||||||
Comprehensive income: |
||||||||||||
Net income |
36,235 | 1,923 | 38,158 | |||||||||
Fair value adjustments on interest rate swap agreements,
net of taxes of $2,181 |
3,605 | | 3,605 | |||||||||
Amortization of accumulated other comprehensive loss on terminated swap agreement |
2,317 | | 2,317 | |||||||||
Foreign currency translation adjustment |
33,414 | 127 | 33,541 | |||||||||
Balance at June 30, 2009 |
$ | 850,105 | $ | 14,204 | $ | 864,309 | ||||||
(1) | On February 25, 2010, the Companys board of directors declared a cash dividend for the fourth quarter of 2009 in the amount of $0.18 per share of common stock payable to stockholders of record on March 5, 2010. The dividend was paid on March 19, 2010 in the total amount of approximately $20,046. On May 13, 2010, the Companys board of directors declared a cash dividend for the first quarter of 2010 in the amount of $0.18 per share of common stock payable to stockholders of record on June 4, 2010. The dividend was paid on June 18, 2010 in the total amount of approximately $20,209. | |
(2) | On February 13, 2009, the Companys board of directors declared a cash dividend for the fourth quarter of 2008 in the amount of $0.18 per share of common stock payable to stockholders of record on March 5, 2009. The dividend was paid on March 20, 2009 in the total amount of approximately $19,595. On May 13, 2009, the Companys board of directors declared a cash dividend for the first quarter of 2009 in the amount of $0.18 per share of common stock payable to stockholders of record on June 2, 2009. The dividend was paid on June 18, 2009 in the total amount of approximately $19,674. |
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
6. Acquisition of U.S. Theatres
On March 18, 2009, the Company acquired four theatres with 82 screens from Muvico
Entertainment L.L.C. in an asset purchase for $48,950 in cash. The acquisition resulted in an
expansion of the Companys U.S. theatre base, as three of the theatres are located in Florida and
one theatre is located in Maryland. The Company incurred approximately $113 in transaction costs,
which are reflected in general and administrative expenses on the condensed consolidated statement
of income for the six months ended June 30, 2009.
The transaction was accounted for by applying the acquisition method. The following table
represents the identifiable assets acquired and liabilities assumed that have been recognized by
the Company in its condensed consolidated balance sheet as of the date of acquisition:
Theatre properties and equipment |
$ | 25,575 | ||
Brandname |
3,500 | |||
Noncompete agreement |
1,630 | |||
Goodwill |
44,565 | |||
Unfavorable lease |
(3,600 | ) | ||
Capital lease liability (for one theatre) |
(22,720 | ) | ||
Total |
$ | 48,950 | ||
The brandname and noncompete agreement are presented as intangible assets and the unfavorable
lease is presented as other long-term liabilities on the Companys condensed consolidated balance
sheets. The weighted average remaining amortization period for these intangible assets and the
unfavorable lease are 8.4 years and 8.8 years, respectively. Goodwill represents excess of the
costs of acquiring these theatres over amounts assigned to assets acquired, including intangible
assets, and liabilities assumed. The goodwill recorded is fully deductible for tax purposes.
7. Investment in National CineMedia
Below is a summary of activity with NCM included in the Companys condensed consolidated
financial statements:
Investment | Deferred | Distributions | Equity | Other | Cash | |||||||||||||||||||
in NCM | Revenue | from NCM | Earnings | Revenue | Received | |||||||||||||||||||
Balance as of December 31, 2009 |
$ | 34,232 | $ | (203,006 | ) | |||||||||||||||||||
Receipt of common units due to annual common unit adjustment |
30,683 | (30,683 | ) | $ | | $ | | $ | | $ | | |||||||||||||
Change of interest gain due to 2010 extraordinary common
unit adjustment |
271 | | | | | | ||||||||||||||||||
Revenues earned under exhibitor services agreement |
| | | | (2,434 | ) | 2,434 | |||||||||||||||||
Receipt of excess cash distributions |
(1,454 | ) | | (8,211 | ) | | | 9,665 | ||||||||||||||||
Receipt under tax receivable agreement |
(477 | ) | | (3,067 | ) | | | 3,544 | ||||||||||||||||
Equity in earnings |
1,028 | | | (1,028 | ) | | | |||||||||||||||||
Amortization of deferred revenue |
| 1,477 | | | (1,477 | ) | | |||||||||||||||||
Balance as of and for the period ended June 30, 2010 |
$ | 64,283 | $ | (232,212 | ) | $ | (11,278 | ) | $ | (1,028 | ) | $ | (3,911 | ) | $ | 15,643 | ||||||||
During March 2010, NCM performed its annual common unit adjustment calculation under the
Common Unit Adjustment Agreement. As a result of the calculation, the Company received an
additional 1,757,548 common units of NCM, each of which is convertible into one share of NCM, Inc.
common stock. The Company recorded the additional common units received at fair value as an
investment with a corresponding adjustment to deferred revenue of $30,683. The common unit
adjustment resulted in a change in the Companys ownership percentage in NCM from approximately
15.0% to 16.3%. Subsequent to the annual common unit adjustment
discussed above, in May 2010, one of NCMs other founding
members completed an acquisition of another theatre circuit that
required an extraordinary common unit
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
adjustment calculation by NCM in accordance with the Common Unit Adjustment Agreement. As a result
of this extraordinary common unit adjustment, the founding member was granted additional common units of NCM, which
resulted in dilution of the Companys ownership interest in NCM from 16.3% to 15.4%. The Company
recognized a change of interest gain of approximately $271 during the three and six months ended
June 30, 2010 as a result of this
extraordinary common unit adjustment, which is reflected net of other losses in loss on sale
of assets and other on the condensed consolidated statement of income.
As of June 30, 2010, the Company owned a total of 16,946,503 common units of NCM. The Company
continues to account for its investment in NCM under the equity method of accounting. During the
six months ended June 30, 2010 and June 30, 2009, the Company recorded equity earnings of
approximately $1,028 and $407, respectively.
Pursuant to the terms of the Exhibitor Services Agreement, the Company recorded other
revenues, excluding the amortization of deferred revenue, of approximately $2,434 and $2,870 during
the six months ended June 30, 2010 and 2009, respectively. These amounts include the per patron and
per digital advertising screen theatre access fee and theatre rental revenue, net of amounts due to
NCM for on-screen advertising time provided to the Companys beverage concessionaire of $5,183 and
$4,790, respectively.
Below is summary financial information for NCM for the three and six months ended July 1,
2010:
Three Months | Six Months | |||||||
Ended July 1, 2010 | Ended July 1, 2010 | |||||||
Gross revenues |
$ | 98,998 | $ | 183,656 | ||||
Operating income |
$ | 43,550 | $ | 69,710 | ||||
Net earnings |
$ | 27,546 | $ | 40,193 |
8. Investment in Digital Cinema Implementation Partners
On
February 12, 2007, the Company, AMC Entertainment Inc. and Regal
Entertainment Group entered into a joint venture known as Digital
Cinema Implementation Partners LLC (DCIP) to facilitate the implementation of digital cinema in
the Companys theatres and to establish agreements with major motion picture studios for the
financing of digital cinema.
During January 2010, the Company contributed $500 to DCIP. On March 10, 2010, the Company
signed a master equipment lease agreement and other related agreements (collectively the
agreements) with Kasima LLC (Kasima), which is an indirect subsidiary of DCIP and a related
party to the Company. Upon signing the agreements, the Company contributed cash of $1,201 and
digital projection systems at a fair value of $16,380 to DCIP (collectively the contributions),
which DCIP then contributed to Kasima. The net book value of the contributed equipment was
approximately $18,090, and as a result, the Company recorded a loss of approximately $1,710, which
is reflected in loss on sale of assets and other on the condensed consolidated statement of income
for the six months ended June 30, 2010. Subsequent to the contributions, the Company continues to
have a 33% voting interest in DCIP and has a 24.3% economic interest in DCIP. On April 24, 2010,
the Company sold digital projection systems with a net book value of approximately $1,520 to Kasima
for approximately $1,197, resulting in an additional loss of approximately $323, which is reflected
in loss on sale of assets and other on the condensed consolidated statement of income for the three
and six months ended June 30, 2010.
The Company has a variable interest in Kasima through the terms of its master equipment lease
agreement; however, the Company has determined that it is not the primary beneficiary of Kasima,
as the Company does not have the ability to direct the activities of Kasima that most significantly
impact Kasimas economic performance. The Company accounts for its investment in DCIP and its
subsidiaries under the equity method of accounting. During the six months ended June 30, 2010 and
2009, the Company recorded equity losses of $4,195 and $1,478, respectively, relating to this
investment. During March 2010, the Company received a cash distribution of $1,057 from DCIP.
As a result of these agreements, the Company will continue to roll out digital projection
systems to a majority of its first run U.S. theatres. The digital projection systems will be leased
from Kasima under an operating lease
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
with an initial term of twelve years that contains ten
one-year fair value renewal options. The equipment lease agreement also contains a fair value
purchase option. Under the equipment lease agreement, the Company pays minimum annual rent of one
thousand dollars per digital projection system for the first six and a half years from the
effective date of the agreement and minimum annual rent of three thousand dollars per digital
projection system beginning at six and a half years from the effective date through the end of the
lease term. The Company may also be subject to various types of other rent if such digital
projection systems do not meet minimum performance requirements as outlined in the agreements.
Certain of the other rent payments are subject to either a monthly or an
annual maximum. As of June 30, 2010, the Company had 537 digital projection systems being
leased under the master equipment lease agreement with Kasima. The Company recorded equipment lease
expense of approximately $252 during the six months ended June 30, 2010, which is included in
utilities and other costs on the condensed consolidated statement of income.
The digital projection systems leased from Kasima will replace a majority of the Companys
existing 35 millimeter projection systems in its U.S. theatres. Therefore, upon signing the
agreements, the Company began accelerating the depreciation of these existing 35 millimeter
projection systems, based on the estimated two year replacement timeframe. The Company recorded
depreciation expense of approximately $3,695 on its domestic 35 millimeter projectors during the six months
ended June 30, 2010. The net book value of the existing 35 millimeter projection systems to be
replaced was approximately $15,990 as of June 30, 2010.
9. Investment in Real D
Under its license agreement with Real D, the Company earns options to purchase shares of
common stock once it has installed a certain number of 3-D systems as outlined in the license
agreement. During June 2010, the Company reached the first target level and vested in 407,593
options to purchase shares of common stock in Real D, which have an exercise price of $0.00667.
Upon vesting in these options, the Company recorded an investment in Real D of approximately
$6,521, which represents the estimated fair value of the options, with an offset to deferred lease
incentive liability. The fair value of the options was determined using Real Ds initial public
offering price, which falls under Level 2 of the U.S. GAAP fair value hierarchy as defined by ASC
Topic 820-10-35. The Company will account for the investment in Real D as a cost method
investment. The deferred lease incentive liability, which is reflected in other long-term
liabilities on the condensed consolidated balance sheet as of June 30, 2010, will be amortized over
the remaining term of the license agreement, which is approximately seven and one-half years. Under
the license agreement, the Company can earn up to 815,186 additional options to purchase shares of
common stock of Real D as it meets additional 3-D system installation targets as outlined in the
license agreement.
10. Treasury Stock and Share Based Awards
Treasury Stock Treasury stock represents shares of common stock repurchased by the Company
and not yet retired. The Company has applied the cost method in recording its treasury shares.
During the six months ended June 30, 2010, the Company repurchased 2,719 shares of common stock at
a cost of $0.001 per share as a result of restricted stock forfeitures. The Company also
repurchased 35,298 shares of common stock at an aggregate cost of $531 as a result of the noncash
exercises of stock options by employees. In a noncash exercise of stock options, the exercise price
for the shares to be held by employees and the related minimum tax withholdings are satisfied with
stock withholdings. As part of these noncash exercises, employees exercised a total of 54,114
options and of this amount, 35,298 shares were repurchased by the Company to satisfy the exercise
price and tax liabilities. The remaining 18,816 shares were issued to the employees. The Company
repurchased the 35,298 shares at market value, which ranged from $14.85 to $15.17 per share, and
represented the closing price of the Companys common stock on the day prior to each date of
repurchase. The Company also repurchased 16,424 shares at market value on the dates of repurchase
at a cost of $299 as a result of the election by employees to have the Company withhold shares of
restricted stock to satisfy their tax liabilities upon vesting in restricted stock. All of these
repurchases were done in accordance with the Amended and Restated 2006 Long Term Incentive Plan
(Restated Incentive Plan). As of June 30, 2010, the Company had no plans to retire any shares of
treasury stock.
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Stock Options A summary of stock option activity and related information for the six months
ended June 30, 2010 is as follows:
Weighted Average | ||||||||||||||||
Number of | Weighted Average | Grant Date Fair | Aggregate Intrinsic | |||||||||||||
Options | Exercise Price | Value | Value | |||||||||||||
Outstanding at December 31, 2009 |
1,231,892 | $ | 7.63 | $ | 3.51 | |||||||||||
Exercised |
(772,727 | ) | $ | 7.63 | $ | 3.51 | ||||||||||
Outstanding at June 30, 2010 |
459,165 | $ | 7.63 | $ | 3.51 | $ | 2,535 | |||||||||
Options exercisable at June 30, 2010 |
459,165 | $ | 7.63 | $ | 3.51 | $ | 2,535 | |||||||||
The total intrinsic value of options exercised during the six month period ended June 30,
2010 was $6,554. The Company recognized a tax benefit of approximately $1,904 related to the
options exercised during the six months ended June 30, 2010.
As of June 30, 2010, there was no remaining unrecognized compensation expense related to
outstanding stock options and all outstanding options fully vested on April 2, 2009. All options
outstanding at June 30, 2010 have an average remaining contractual life of approximately four
years.
Restricted Stock - During the six months ended June 30, 2010, the Company granted 679,308
shares of restricted stock to directors and employees of the Company. The fair value of the
restricted stock granted was determined based on the market value of the Companys stock on the
dates of grant, which ranged from $13.15 to $18.47 per share. The Company assumed forfeiture rates
ranging from zero to 5% for the restricted stock awards. The restricted stock granted to directors
vests over periods ranging from six months to one year and the restricted stock granted to
employees vest over four years based on continued service.
Below is a summary of restricted stock activity for the six months ended June 30, 2010:
Weighted | ||||||||
Shares of | Average | |||||||
Restricted | Grant Date | |||||||
Stock | Fair Value | |||||||
Outstanding at December 31, 2009 |
764,078 | $ | 11.10 | |||||
Granted |
679,308 | $ | 17.94 | |||||
Forfeited |
(2,719 | ) | $ | 11.03 | ||||
Vested |
(189,885 | ) | $ | 12.64 | ||||
Outstanding at June 30, 2010 |
1,250,782 | $ | 14.58 | |||||
Unvested restricted stock at June 30, 2010 |
1,250,782 | $ | 14.58 | |||||
The Company recorded compensation expense of $2,134 related to these restricted stock
awards during the six months ended June 30, 2010. As of June 30, 2010, the remaining unrecognized
compensation expense related to restricted stock awards was $15,214 and the weighted average period
over which this remaining compensation expense will be recognized is approximately three years.
Upon vesting, the Company receives an income tax deduction. The total fair value of shares that
vested during the six months ended June 30, 2010 was $3,260. The Company recognized a tax benefit
of approximately $1,229 related to these vested shares. The recipients of restricted stock are
entitled to receive dividends and to vote their respective shares, however the sale and transfer of
the restricted shares is prohibited during the restriction period.
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Restricted Stock Units During the six months ended June 30, 2010, the Company granted
restricted stock units representing 396,432 hypothetical shares of common stock under the Restated
Incentive Plan. The restricted stock units vest based on a combination of financial performance
factors and continued service. The financial performance factors are based on an implied equity
value concept that determines an internal rate of return (IRR) during the three fiscal year
period ending December 31, 2012 based on a formula utilizing a multiple of Adjusted EBITDA subject
to certain specified adjustments (as defined in the restricted stock unit award agreement). The
financial performance factors for the restricted stock units have a threshold, target and maximum
level of payment opportunity. If the IRR for the three year period is at least 8.5%, which is the
threshold, one-third of the restricted stock units vest. If the IRR for the three year period is at
least 10.5%, which is the target, two-thirds of the restricted stock units vest. If the IRR for the
three year period is at least 12.5%, which is the maximum, 100% of the restricted stock units vest.
Grantees are eligible to receive a ratable portion of the common stock issuable if the IRR is
within the targets previously noted. All payouts of restricted stock units that vest will be
subject to an additional service requirement and will be paid in the form of common stock if the
participant continues to provide services through March 31, 2014, which is the fourth anniversary
of the grant date. Restricted stock unit award participants are eligible to receive dividend
equivalent payments if and at the time the restricted stock unit awards are paid out.
Below is a table summarizing the potential number of shares that could vest under restricted
stock unit awards granted during the six months ended June 30, 2010 at each of the three target
levels of financial performance (excluding forfeiture assumptions):
Number of | ||||||||
Shares | Value at | |||||||
Vesting | Grant | |||||||
at IRR of at least 8.5%
|
132,144 | $ | 2,423 | |||||
at IRR of at least 10.5%
|
264,288 | $ | 4,847 | |||||
at IRR of at least 12.5%
|
396,432 | $ | 7,271 |
Due to the fact that the IRR for the three year performance period could not be
determined at the time of grant, the Company estimated that the most likely outcome is the
achievement of the mid-point IRR level. The Company assumed a forfeiture rate of 5% for the
restricted stock unit awards. If during the service period, additional information becomes
available to lead the Company to believe a different IRR level will be achieved for the three year
performance period, the Company will reassess the number of units that will vest for the grant and
adjust its compensation expense accordingly on a prospective basis over the remaining service
period.
During the six months ended June 30, 2010, the Compensation Committee of the Companys board
of directors approved a modification of restricted stock unit awards granted to employees during
2008. The Compensation Committee also approved the cancellation and replacement of restricted stock
unit awards granted to the Companys top five executive officers during 2008. Both the modification
and the cancellation and replacement were accounted for as modifications of share based awards. As
a result of these modifications, the Company recorded incremental compensation expense of
approximately $391 during the six months ended June 30, 2010, which represents the difference
between the grant date fair value and the modification date fair value of these awards for the
portion of the service period that has been satisfied. The service period for the modified awards
did not change. The Company will record additional incremental compensation expense of $304 over
the remaining service period.
No restricted stock unit awards have vested. There were no forfeitures of restricted stock
unit awards during the six months ended June 30, 2010. The Company recorded compensation expense of
$1,120 related to these restricted stock unit awards during the six months ended June 30, 2010,
including the aforementioned $391 related to the modification of the 2008 restricted stock unit
awards. As of June 30, 2010, the Company had restricted stock units outstanding that represented a
total of 883,943 hypothetical shares of common stock, net of actual cumulative forfeitures of
20,019 units, assuming the maximum IRR of at least 12.5% is achieved for all of the grants. As of
June 30, 2010, the remaining unrecognized compensation expense related to the outstanding
restricted stock unit awards was $6,622, which assumes the mid-point IRR level will be achieved for
all of the restricted stock units outstanding. The weighted average period over which this
remaining compensation expense will be recognized is approximately three years.
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
11. Long-Term Debt Activity
Senior Notes
On June 29, 2009, Cinemark USA, Inc. issued $470,000 aggregate principal amount of 8.625%
senior notes due 2019 with an original issue discount of $11,468, resulting in proceeds of
approximately $458,532. The proceeds were primarily used to fund the repurchase of
$402,459 aggregate principal amount at maturity of Cinemark, Inc.s 9 3/4% senior discount notes
discussed below. Interest is payable on June 15 and December 15 of each year beginning December 15,
2009. The senior notes mature on June 15, 2019. As of June 30, 2010, the carrying value of the
senior notes was $459,278.
Cash Tender Offer for Cinemark, Inc.s 9 3/4% Senior Discount Notes due 2014
On June 15, 2009, Cinemark, Inc. commenced a cash tender offer for any and all of its 9 3/4%
senior discount notes due 2014, of which $419,403 aggregate principal amount at maturity remained
outstanding. In connection with the tender offer, Cinemark, Inc. solicited consents to adopt
proposed amendments to the indenture to eliminate substantially all restrictive covenants and
certain events of default provisions. On June 29, 2009, approximately $402,459 aggregate principal
amount at maturity of the 9 3/4% senior discount notes were tendered and repurchased by the Company
for approximately $433,415, including accrued interest of $11,336 and tender premiums paid of
$19,620. The Company funded the repurchase with the proceeds from the issuance of the Cinemark USA,
Inc. senior notes discussed above. The Company recorded a loss on early retirement of debt of
approximately $26,795 during the six months ended June 30, 2009, which included tender premiums
paid, other fees and the write-off of unamortized debt issue costs.
Amendment and Extension of Senior Secured Credit Facility
On March 2, 2010, the Company completed an amendment and extension to its existing senior
secured credit facility to primarily extend the maturities of the facility and make certain other
modifications. Approximately $924,375 of the Companys then remaining outstanding $1,083,600 term
loan debt was extended from an original maturity date of October 2013 to a maturity date of April
2016. The remaining term loan debt of $159,225 that was not extended matures on the original
maturity date of October 2013. Payments on the extended amount are due in equal quarterly
installments of $2,311 through March 31, 2016 with the remaining principal amount of $866,602 due
April 30, 2016. Payments on the original amount that was not extended are due in equal quarterly
installments of approximately $398 beginning March 31, 2010 through September 30, 2012 and increase
to approximately $37,418 each calendar quarter from December 31, 2012 to June 30, 2013 with one
final payment of approximately $42,593 at maturity on October 5, 2013. The amendment also imposed a
1.0% prepayment premium for one year on certain prepayments of the extended portion of the term
loan debt. As of June 30, 2010, there was $1,078,182 outstanding under the term loan.
The interest rate on the original term loan debt that was not extended accrues interest, at
Cinemark USA, Inc.s option, at: (A) the base rate equal to the higher of (1) the prime lending
rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds
effective rate from time to time plus 0.50% (the base rate), plus a margin that ranges from 0.50%
to 0.75% per annum, or (B) a eurodollar rate plus a margin that ranges from 1.50% to 1.75%, per
annum. The margin of the original term loan debt is a function of the applicable corporate credit
rating. The interest rate on the extended portion of the term loan debt accrues interest, at
Cinemark USA, Inc.s option at: (A) the base rate equal to the higher of (1) the prime lending rate
as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective
rate from time to time plus 0.50%, plus a 2.25% margin per annum, or (B) a eurodollar rate plus a
3.25% margin per annum.
In addition, the maturity date of $73,500 of Cinemark USA, Inc.s $150,000 revolving credit
line has been extended from October 2012 to March 2015. The maturity date of the remaining $76,500
of Cinemark USA, Inc.s revolving credit line did not change and remains October 2012. As of June
30, 2010, the Company had no borrowings outstanding under the revolving credit line. The interest
rate on the original revolving credit line accrues interest, at Cinemark USA, Inc.s option, at:
(A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British
Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
plus
0.50%, plus a margin that ranges from 0.50% to 1.00% per annum, or (B) a eurodollar rate plus a
margin that ranges from 1.50% to 2.00% per annum. The interest rate on the extended revolving
credit line accrues interest, at Cinemark USA, Inc.s option at: (A) the base rate equal to the
higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time
to time plus 0.50%, plus a margin that ranges from 1.75% to 2.0% per annum, or (B) a eurodollar
rate plus a margin that ranges from 2.75% to 3.0% per annum. The margin of the revolving credit
line is a function of the consolidated net senior secured leverage ratio as defined in the credit
agreement.
The Company incurred debt issue costs of approximately $8,700 during the six months ended June
30, 2010 related to the amendment and extension of its senior secured credit facility. These costs
will be amortized using the straight-line method over the remaining term of the facility.
Fair Value of Long-Term Debt
The Company estimates the fair value of its long-term debt primarily using quoted market
prices, which fall under Level 2 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic
820-10-35. The carrying value of the Companys long-term debt was $1,537,917 and $1,543,705 as of
June 30, 2010 and December 31, 2009, respectively. The fair value of the Companys long-term debt
was $1,516,184 and $1,513,838 as of June 30, 2010 and December 31, 2009, respectively.
12. Interest Rate Swap Agreements
The Company has two interest rate swap agreements, both of which qualify for cash flow hedge
accounting. The fair values of the interest rate swaps are recorded on the Companys condensed
consolidated balance sheet as an asset or liability with the effective portion of the interest rate
swaps gains or losses reported as a component of accumulated other comprehensive loss and the
ineffective portion reported in earnings. The evaluation technique used to determine fair value is
the income approach and under this approach, the Company uses projected future interest rates as
provided by counterparties to the interest rate swap agreements and the fixed rates that the
Company is obligated to pay under these agreements. The Companys measurements use significant
unobservable inputs, which fall in Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB
ASC Topic 820-10-35. There were no changes in valuation techniques during the period, no transfers
in or out of Level 3 and no gains or losses included in earnings that were attributable to the
change in unrealized gains or losses related to the interest rate swap agreements.
As of June 30, 2010, the aggregate fair values of the two interest rate swap agreements was a
liability of approximately $19,257 which has been recorded as a component of other long-term
liabilities. A corresponding cumulative amount of $11,824, which is net of deferred taxes of
$7,433, has been recorded as an increase in accumulated other comprehensive loss on the Companys
condensed consolidated balance sheet as of June 30, 2010. The interest rate swaps exhibited no
ineffectiveness during the six months ended June 30, 2010.
Below is a reconciliation of our interest rate swap values from January 1 to June 30:
2010 | 2009 | |||||||
Beginning liability balance January 1 |
$ | 18,524 | $ | 24,781 | ||||
Total (gain) loss included in accumulated other comprehensive loss |
733 | (5,786 | ) | |||||
Ending liability balance June 30 |
$ | 19,257 | $ | 18,995 | ||||
The Company amortized approximately $2,317 to interest expense during each of the six
months ended June 30, 2009 and 2010, related to a previously terminated interest rate swap
agreement. The Company will amortize approximately $4,634 to interest expense for this terminated
interest rate swap agreement over the next twelve months.
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
13. Goodwill and Other Intangible Assets
The Companys goodwill was as follows:
U.S. | International | |||||||||||
Operating | Operating | |||||||||||
Segment | Segment | Total | ||||||||||
Balance at December 31, 2009 (1) |
$ | 948,026 | $ | 168,276 | $ | 1,116,302 | ||||||
Foreign currency translation adjustments |
| (1,959 | ) | (1,959 | ) | |||||||
Balance at June 30, 2010 (1) |
$ | 948,026 | $ | 166,317 | $ | 1,114,343 | ||||||
(1) | Balances are presented net of accumulated impairment losses of $214,031 for the U.S. operating segment and $27,622 for the international operating segment. |
The Company evaluates goodwill for impairment on an annual basis during the fourth
quarter or whenever events or changes in circumstances indicate the carrying value of goodwill
might exceed its estimated fair value.
The Company evaluates goodwill for impairment at the reporting unit level and has allocated
goodwill to the reporting unit based on an estimate of its relative fair value. The Company
considers the reporting unit to be each of its sixteen regions in the U.S. and each of its eight
countries internationally (Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala are
considered one reporting unit). Goodwill impairment is evaluated using a two-step approach
requiring the Company to compute the fair value of a reporting unit and compare it with its
carrying value. If the carrying value of the reporting unit exceeds the estimated fair value, a
second step is performed to measure the potential goodwill impairment. Significant judgment is
involved in estimating cash flows and fair value. Managements estimates, which fall under Level 3
of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on
historical and projected operating performance, recent market transactions and current industry
trading multiples. Fair value is determined based on a multiple of cash flows, which was six and a
half times for the evaluation performed during the fourth quarter of 2009. No events or changes in
circumstances occurred during the six months ended June 30, 2010, that indicated that the carrying
value of goodwill might exceed its estimated fair value.
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Intangible assets consisted of the following:
Balance at | Foreign Currency | Balance at | ||||||||||||||
December 31, | Translation | June 30, | ||||||||||||||
2009 | Amortization | Adjustments & Other | 2010 | |||||||||||||
Intangible assets with finite lives: |
||||||||||||||||
Vendor contracts: |
||||||||||||||||
Gross carrying amount |
$ | 56,474 | $ | | $ | 61 | $ | 56,535 | ||||||||
Accumulated amortization |
(29,870 | ) | (1,634 | ) | | (31,504 | ) | |||||||||
Net carrying amount |
26,604 | (1,634 | ) | 61 | 25,031 | |||||||||||
Other intangible assets: |
||||||||||||||||
Gross carrying amount |
26,510 | | (1,896 | ) | 24,614 | |||||||||||
Accumulated amortization |
(20,596 | ) | (1,125 | ) | 726 | (20,995 | ) | |||||||||
Net carrying amount |
5,914 | (1,125 | ) | (1,170 | ) | 3,619 | ||||||||||
Total net intangible assets with finite lives |
32,518 | (2,759 | ) | (1,109 | ) | 28,650 | ||||||||||
Intangible assets with indefinite lives: |
||||||||||||||||
Tradename |
310,480 | | 80 | 310,560 | ||||||||||||
Total intangible assets net |
$ | 342,998 | $ | (2,759 | ) | $ | (1,029 | ) | $ | 339,210 | ||||||
Estimated aggregate future amortization expense for intangible assets is as follows:
For the six months ended December 31, 2010 |
$ | 2,643 | ||
For the twelve months ended December 31, 2011 |
5,158 | |||
For the twelve months ended December 31, 2012 |
5,002 | |||
For the twelve months ended December 31, 2013 |
4,256 | |||
For the twelve months ended December 31, 2014 |
3,710 | |||
Thereafter |
7,881 | |||
Total |
$ | 28,650 | ||
14. Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment indicators on a quarterly basis or
whenever events or changes in circumstances indicate the carrying amount of the assets may not be
fully recoverable.
The Company considers actual theatre level cash flows, future years budgeted theatre level
cash flows, theatre property and equipment carrying values, amortizing intangible assets carrying
values, the age of a recently built theatre, competitive theatres in the marketplace, changes in
foreign currency exchange rates, the impact of recent ticket price changes, available lease renewal
options and other factors considered relevant in its assessment of impairment of individual theatre
assets. Long-lived assets are evaluated for impairment on an individual theatre basis, which the
Company believes is the lowest applicable level for which there are identifiable cash flows. The
impairment evaluation is based on the estimated undiscounted cash flows from continuing use through
the remainder of the theatres useful life. The remainder of the useful life correlates with the
available remaining lease period, which includes the probability of renewal periods for leased
properties and a period of twenty years for fee owned properties. If the estimated undiscounted
cash flows are not sufficient to recover a long-lived assets carrying value, the Company then
compares the carrying value of the asset group (theatre) with its estimated fair value. When
estimated fair value is determined to be lower than the carrying value of the asset group
(theatre), the asset group (theatre) is written down to its estimated fair value. The estimated
aggregate fair value of the long-lived assets impaired during the six months ended June 30, 2010
was approximately $5,504.
Significant judgment is involved in estimating cash flows and fair value. Managements
estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC
Topic 820-10-35, are based on historical and projected operating performance, recent market
transactions and current industry trading multiples. Fair value is determined based on a multiple
of cash flows, which was six and a half times for the evaluations performed during the six months
ended June 30, 2009 and 2010.
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
The long-lived asset impairment charges recorded during this period are specific to theatres
that were directly and individually impacted by increased competition, or adverse changes in market
demographics.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
United States theatre properties |
$ | 2,494 | $ | 3,844 | $ | 2,841 | $ | 4,665 | ||||||||
International theatre properties |
1,063 | 86 | 1,063 | 233 | ||||||||||||
Subtotal |
$ | 3,557 | $ | 3,930 | $ | 3,904 | $ | 4,898 | ||||||||
Intangible assets |
1,131 | | 1,131 | 71 | ||||||||||||
Impairment of long-lived assets |
$ | 4,688 | $ | 3,930 | $ | 5,035 | $ | 4,969 | ||||||||
15. Foreign Currency Translation
The accumulated other comprehensive loss account in stockholders equity of $7,459 and $10,370
at December 31, 2009 and June 30, 2010, respectively, includes the cumulative foreign currency
adjustments of $16,070 and $11,299, respectively, from translating the financial statements of the
Companys international subsidiaries, and also includes the change in fair values of the Companys
interest rate swap agreements.
In 2009 and 2010, all foreign countries where the Company has operations were deemed
non-highly inflationary and the local currency is the same as the functional currency in all of the
locations. Thus, any fluctuation in the currency results in a cumulative foreign currency
translation adjustment recorded to accumulated other comprehensive loss.
On June 30, 2010, the exchange rate for the Brazilian real was 1.80 reais to the U.S. dollar
(the exchange rate was 1.75 reais to the U.S. dollar at December 31, 2009). As a result, the effect
of translating the June 30, 2010 Brazilian financial statements into U.S. dollars is reflected as a
cumulative foreign currency translation adjustment to the accumulated other comprehensive loss
account as a decrease in stockholders equity of $5,724. At June 30, 2010, the total assets of the
Companys Brazilian subsidiaries were U.S. $274,317.
On June 30, 2010, the exchange rate for the Mexican peso was 12.84 pesos to the U.S. dollar
(the exchange rate was 13.04 pesos to the U.S. dollar at December 31, 2009). As a result, the
effect of translating the June 30, 2010 Mexican financial statements into U.S. dollars is reflected
as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss
account as an increase in stockholders equity of $1,513. At June 30, 2010, the total assets of the
Companys Mexican subsidiaries were U.S. $127,081.
On June 30, 2010, the exchange rate for the Chilean peso was 550.66 pesos to the U.S. dollar
(the exchange rate was 519.30 pesos to the U.S. dollar at December 31, 2009). As a result, the
effect of translating the June 30, 2010 Chilean financial statements into U.S. dollars is reflected
as a cumulative foreign currency translation adjustment to the accumulated other comprehensive loss
account as a decrease in stockholders equity of $1,232. At June 30, 2010, the total assets of the
Companys Chilean subsidiaries were U.S. $31,559.
The effect of translating the June 30, 2010 financial statements of the Companys other
international subsidiaries, with local currencies other than the U.S. dollar, is reflected as a
cumulative foreign currency translation adjustment to the accumulated other comprehensive loss
account as an increase in stockholders equity of $1,758.
During June 2010, the Companys ownership in its Colombian subsidiary increased from 50.1% to
100%, as a result of the Colombia Share Exchange. As part of this transaction, the Company recorded
the amount of accumulated other comprehensive loss previously allocated to the noncontrolling
interest of $1,086 to accumulated other comprehensive loss with an offsetting credit to additional
paid-in-capital. See Note 4.
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
16. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed consolidated statements of
cash flows:
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash paid for interest (1) |
$ | 47,788 | $ | 191,507 | ||||
Cash paid for income taxes, net of refunds received |
$ | 56,429 | $ | 33,893 | ||||
Noncash investing and financing activities: |
||||||||
Change in accounts payable and accrued expenses for the acquisition of theatre
properties and equipment (2) |
$ | 97 | $ | (7,118 | ) | |||
Theatre properties acquired under capital lease (3) |
$ | 2,191 | $ | 20,400 | ||||
Change in fair market values of interest rate swap agreements, net of taxes |
$ | (456 | ) | $ | 3,605 | |||
Investment in NCM receipt of common units (see Note 7) |
$ | 30,683 | $ | 15,536 | ||||
Investment in NCM change of interest gain (see Note 7) |
$ | 271 | $ | | ||||
Equipment contributed to DCIP (see Note 8) |
$ | 18,090 | $ | | ||||
Dividends accrued on unvested restricted stock unit awards |
$ | (162 | ) | $ | (85 | ) | ||
Shares issued upon non-cash stock option exercises, at exercise price of $7.63 per share |
$ | 413 | $ | | ||||
Investment in Real D (see Note 9) |
$ | 6,521 | $ | | ||||
Issuance of shares as a result of Colombia Share Exchange (see Note 4) |
$ | 6,951 | $ | |
(1) | Amount for six months ended June 30, 2009 includes $151,952 of interest paid as a result of the repurchase of approximately $402,459 aggregate principal amount of the Companys 9 3/4% senior discount notes. The interest portion of the repurchase had accreted on the senior discount notes since issuance during 2004. | |
(2) | Additions to theatre properties and equipment included in accounts payable as of December 31, 2009 and June 30, 2010 were $7,823 and $7,919, respectively. | |
(3) | Amount recorded during the six months ended June 30, 2009 was a result of the acquisition of theatres in the U.S. as discussed in Note 6. |
17. Segments
The Company manages its international market and its U.S. market as separate reportable
operating segments. The international segment consists of operations in Brazil, Mexico, Chile,
Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and
Guatemala. The U.S. segment includes U.S. and Canada operations. Each segments revenue is derived
from admissions and concession sales and other ancillary revenues, primarily screen advertising.
The measure of segment profit and loss the Company uses to evaluate performance and allocate its
resources is Adjusted EBITDA, as defined in the reconciliation table below. The Company does not
report asset information by segment because that information is not used to evaluate the
performance of or allocate resources between segments.
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Below is a breakdown of selected financial information by reportable operating segment:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues
|
||||||||||||||||
U.S. |
$ | 410,964 | $ | 419,575 | $ | 799,579 | $ | 761,019 | ||||||||
International |
129,641 | 98,962 | 258,912 | 184,158 | ||||||||||||
Eliminations |
(1,236 | ) | (1,029 | ) | (2,491 | ) | (1,869 | ) | ||||||||
Total Revenues |
$ | 539,369 | $ | 517,508 | $ | 1,056,000 | $ | 943,308 | ||||||||
Adjusted EBITDA
|
||||||||||||||||
U.S. |
$ | 96,548 | $ | 100,576 | $ | 185,953 | $ | 182,295 | ||||||||
International |
28,568 | 20,216 | 60,944 | 36,485 | ||||||||||||
Total Adjusted EBITDA |
$ | 125,116 | $ | 120,792 | $ | 246,897 | $ | 218,780 | ||||||||
Capital Expenditures
|
||||||||||||||||
U.S. |
$ | 23,508 | $ | 27,171 | $ | 36,008 | $ | 43,422 | ||||||||
International |
13,935 | 10,875 | 20,952 | 17,496 | ||||||||||||
Total Capital Expenditures |
$ | 37,443 | $ | 38,046 | $ | 56,960 | $ | 60,918 | ||||||||
The following table sets forth a reconciliation of net income to Adjusted EBITDA:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income |
$ | 40,759 | $ | 19,807 | $ | 77,470 | $ | 38,158 | ||||||||
Add (deduct): |
||||||||||||||||
Income taxes |
10,211 | 4,320 | 30,041 | 18,963 | ||||||||||||
Interest expense (1) |
28,605 | 25,649 | 54,615 | 51,113 | ||||||||||||
Loss on early retirement of debt |
| 26,795 | | 26,795 | ||||||||||||
Other (income) expense (2) |
1,454 | (994 | ) | 642 | (2,287 | ) | ||||||||||
Depreciation and amortization |
34,657 | 37,535 | 68,590 | 73,668 | ||||||||||||
Amortization of favorable/unfavorable
leases |
258 | 346 | 416 | 669 | ||||||||||||
Impairment of long-lived assets |
4,688 | 3,930 | 5,035 | 4,969 | ||||||||||||
Loss on sale of assets and other |
1,191 | 1,186 | 4,358 | 1,458 | ||||||||||||
Deferred lease expenses |
914 | 1,034 | 1,697 | 2,121 | ||||||||||||
Amortization of long-term prepaid rents |
438 | 360 | 779 | 750 | ||||||||||||
Share based awards compensation expense |
1,941 | 824 | 3,254 | 2,403 | ||||||||||||
Adjusted EBITDA |
$ | 125,116 | $ | 120,792 | $ | 246,897 | $ | 218,780 | ||||||||
(1) | Includes amortization of debt issue costs. | |
(2) | Includes interest income, foreign currency exchange gain, and equity in loss of affiliates and excludes distributions from NCM. Distributions from NCM are reported entirely within the U.S. operating segment. |
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
Financial Information About Geographic Areas
The Company has operations in the U.S., Canada, Brazil, Mexico, Chile, Colombia, Argentina,
Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and Guatemala, which are
reflected in the condensed consolidated financial statements. Below is a breakdown of selected
financial information by geographic area:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
Revenues | 2010 | 2009 | 2010 | 2009 | ||||||||||||
U.S. and Canada |
$ | 410,964 | $ | 419,575 | $ | 799,579 | $ | 761,019 | ||||||||
Brazil |
69,999 | 49,323 | 139,217 | 92,581 | ||||||||||||
Mexico |
17,715 | 15,311 | 35,097 | 29,528 | ||||||||||||
Other foreign
countries |
41,927 | 34,328 | 84,598 | 62,049 | ||||||||||||
Eliminations |
(1,236 | ) | (1,029 | ) | (2,491 | ) | (1,869 | ) | ||||||||
Total |
$ | 539,369 | $ | 517,508 | $ | 1,056,000 | $ | 943,308 | ||||||||
June 30, | December 31, | |||||||
Theatre Properties and Equipment-net | 2010 | 2009 | ||||||
U.S. and Canada |
$ | 1,000,033 | $ | 1,040,395 | ||||
Brazil |
97,797 | 91,996 | ||||||
Mexico |
37,938 | 39,371 | ||||||
Other foreign countries |
48,486 | 47,826 | ||||||
Total |
$ | 1,184,254 | $ | 1,219,588 | ||||
18. Related Party Transactions
The Company leased one theatre from Plitt Plaza Joint Venture (Plitt Plaza) on a
month-to-month basis. Plitt Plaza is indirectly owned by Lee Roy Mitchell, the Companys Chairman
of the Board, who owns approximately 12% of the Companys issued and outstanding shares of common
stock. Annual rent is approximately $118 plus certain taxes, maintenance expenses and insurance.
The Company recorded $59 and $30 of facility lease and other operating expenses payable to Plitt
Plaza joint venture during the six months ended June 30, 2009 and 2010, respectively. The Company
closed this theatre during March 2010. During the six months ended June 30, 2010, the Company
recorded approximately $107 related to the termination of the lease, which is reflected in loss on
sale of assets and other on the condensed consolidated statements of income.
The Company manages one theatre 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 Mitchells 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 and 3% of annual
theatre revenues in excess of $50,000. The Company recorded $49 and $50 of management fee revenues
during the six months ended June 30, 2009 and 2010, respectively. All such amounts are included in
the Companys condensed consolidated financial statements with the intercompany amounts eliminated
in consolidation.
The
Company leases 21 theatres and one parking facility from Syufy Enterprises, LP (Syufy)
or affiliates of Syufy, which owns approximately 2% of the Companys issued and outstanding shares
of common stock. Raymond Syufy is one of the Companys directors and is an officer of the general
partner of Syufy. Of these 22 leases, 18 have fixed minimum annual rent in an aggregate amount of
approximately $21,029. The four leases without minimum annual rent have rent based upon a specified
percentage of gross sales as defined in the lease with no minimum annual rent. For the six months
ended June 30, 2009 and 2010, the Company paid approximately $850 and $687, respectively, in
percentage rent for these four leases.
19. Income Taxes
During the six months ended June 30, 2010, the Company had a reduction in its liabilities for
uncertain tax positions of approximately $14,115 due to settlements and closures of various tax
years. These settlements and closures also resulted in a reduction in income tax expense of
approximately $8,882 for the six months
ended June 30, 2010.
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CINEMARK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
20. Commitments and Contingencies
From time to time, the Company is involved in various legal proceedings arising from the
ordinary course of its business operations, such as personal injury claims, employment matters,
landlord-tenant disputes and contractual disputes, some 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 Companys financial position, results of
operations and cash flows.
21. Subsequent Event Dividend Declaration
On July 29, 2010, the Companys board of directors declared a cash dividend in the amount of
$0.18 per common share payable to stockholders of record on August 17, 2010. The dividend will be
paid on September 1, 2010.
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Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with our condensed
consolidated financial statements and related notes and schedules included elsewhere in this
report.
We are a leader in the motion picture exhibition industry, with theatres in the U.S., Canada,
Brazil, Mexico, Chile, Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa
Rica, Panama and Guatemala. As of June 30, 2010, we managed our business under two reportable
operating segments U.S. markets and international markets, in accordance with FASB ASC Topic 280,
Segment Reporting. See Note 17 to our condensed consolidated financial statements.
We generate revenues primarily from box office receipts and concession sales with additional
revenues from screen advertising sales and other revenue streams, such as vendor marketing
programs, pay phones, ATM machines and electronic video games located in some of our theatres. Our
contracts with NCM have assisted us in expanding our offerings to advertisers and broadening
ancillary revenue sources such as digital video monitor advertising, third party branding, and the
use of theatres for alternative content events, such as concerts, sporting events, and other
cultural events. Films driving the box office during the six months ended June 30, 2010 included
the carryover of Avatar, which grossed over $450 million in U.S. box office revenues during the
period and new releases such as Alice in Wonderland, How to Train Your Dragon, Clash of the Titans,
Iron Man 2, Shrek Forever After, The Karate Kid, Toy Story 3 and The Twilight Saga: Eclipse, which
was released on June 30, 2010. Our revenues are affected by changes in attendance and average
admissions and concession revenues per patron. Attendance is primarily affected by the quality and
quantity of films released by motion picture studios. Films scheduled for release during the
remainder of 2010 include The Last Airbender, Inception, Despicable Me, The Other Guys, Eat Pray
Love, Little Fockers, Tron: Legacy, Tangled, Megamind, Yogi Bear, Chronicles of Narnia: The Voyage
of the Dawn Treader and another installment of the Harry Potter franchise, among other films.
Film rental costs are variable in nature and fluctuate with our admissions revenues. Film
rental costs as a percentage of revenues are generally higher for periods in which more blockbuster
films are released. Film rental costs can also vary based on the length of a films run. Film
rental rates are generally negotiated on a film-by-film and theatre-by-theatre basis. Advertising
costs, which are expensed as incurred, are primarily fixed at the theatre level as daily movie
directories placed in newspapers represent the largest component of advertising costs. The monthly
cost of these advertisements is based on, among other things, the size of the directory and the
frequency and size of the newspapers circulation.
Concession supplies expense is variable in nature and fluctuates with our concession revenues.
We purchase concession supplies to replace units sold. We negotiate prices for concession supplies
directly with concession vendors and manufacturers to obtain volume rates.
Although salaries and wages include a fixed cost component (i.e. the minimum staffing costs to
operate a theatre facility during non-peak periods), salaries and wages move in relation to
revenues as theatre staffing is adjusted to respond to changes in attendance.
Facility lease expense is primarily a fixed cost at the theatre level as most of our facility
leases require a fixed monthly minimum rent payment. Certain of our leases are subject to
percentage rent only while others are subject to percentage rent in addition to their fixed monthly
rent if a target annual revenue level is achieved. Facility lease expense as a percentage of
revenues is also affected by the number of theatres under operating leases, the number of theatres
under capital leases and the number of fee-owned theatres.
Utilities and other costs include certain costs that have both fixed and variable components
such as utilities, property taxes, janitorial costs, repairs and maintenance and security services.
Recent Developments
On July 29, 2010, our board of directors declared a cash dividend in the amount of $0.18 per
common share payable to stockholders of record on August 17, 2010. The dividend will be paid on
September 1, 2010.
25
Table of Contents
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 income:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Operating data (in millions): | ||||||||||||||||
Revenues |
||||||||||||||||
Admissions |
$ | 353.1 | $ | 339.1 | $ | 696.1 | $ | 619.0 | ||||||||
Concession |
165.2 | 158.9 | 318.3 | 288.9 | ||||||||||||
Other |
21.1 | 19.5 | 41.6 | 35.4 | ||||||||||||
Total revenues |
$ | 539.4 | $ | 517.5 | $ | 1,056.0 | $ | 943.3 | ||||||||
Cost of operations |
||||||||||||||||
Film rentals and advertising |
193.5 | 190.9 | 382.3 | 338.0 | ||||||||||||
Concession supplies |
24.5 | 24.0 | 46.9 | 43.7 | ||||||||||||
Salaries and wages |
56.3 | 52.0 | 108.8 | 96.4 | ||||||||||||
Facility lease expense |
62.0 | 59.2 | 124.7 | 114.9 | ||||||||||||
Utilities and other |
57.7 | 54.1 | 112.9 | 102.9 | ||||||||||||
General and administrative expenses |
25.0 | 23.7 | 50.5 | 45.5 | ||||||||||||
Depreciation and amortization |
34.9 | 37.9 | 69.0 | 74.3 | ||||||||||||
Impairment of long-lived assets |
4.6 | 3.9 | 5.0 | 5.0 | ||||||||||||
Loss on sale of assets and other |
1.2 | 1.2 | 4.4 | 1.5 | ||||||||||||
Total cost of operations |
$ | 459.7 | $ | 446.9 | $ | 904.5 | $ | 822.2 | ||||||||
Operating income |
$ | 79.7 | $ | 70.6 | $ | 151.5 | $ | 121.1 | ||||||||
Operating data as a percentage of total revenues: |
||||||||||||||||
Revenues |
||||||||||||||||
Admissions |
65.5 | % | 65.5 | % | 65.9 | % | 65.6 | % | ||||||||
Concession |
30.6 | % | 30.7 | % | 30.1 | % | 30.6 | % | ||||||||
Other |
3.9 | % | 3.8 | % | 4.0 | % | 3.8 | % | ||||||||
Total revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of operations (1) |
||||||||||||||||
Film rentals and advertising |
54.8 | % | 56.3 | % | 54.9 | % | 54.6 | % | ||||||||
Concession supplies |
14.8 | % | 15.1 | % | 14.7 | % | 15.1 | % | ||||||||
Salaries and wages |
10.4 | % | 10.0 | % | 10.3 | % | 10.2 | % | ||||||||
Facility lease expense |
11.5 | % | 11.4 | % | 11.8 | % | 12.2 | % | ||||||||
Utilities and other |
10.7 | % | 10.5 | % | 10.7 | % | 10.9 | % | ||||||||
General and administrative expenses |
4.6 | % | 4.6 | % | 4.8 | % | 4.8 | % | ||||||||
Depreciation and amortization |
6.5 | % | 7.3 | % | 6.5 | % | 7.9 | % | ||||||||
Impairment of long-lived assets |
0.9 | % | 0.8 | % | 0.5 | % | 0.5 | % | ||||||||
Loss on sale of assets and other |
0.2 | % | 0.2 | % | 0.4 | % | 0.2 | % | ||||||||
Total cost of operations |
85.2 | % | 86.4 | % | 85.7 | % | 87.2 | % | ||||||||
Operating income |
14.8 | % | 13.6 | % | 14.3 | % | 12.8 | % | ||||||||
Average screen count (month end average) |
4,897 | 4,862 | 4,895 | 4,826 | ||||||||||||
Revenues per average screen (dollars) |
$ | 110,154 | $ | 106,450 | $ | 215,730 | $ | 195,452 | ||||||||
(1) | All costs are expressed as a percentage of total revenues, except film rentals and advertising, which are expressed as a percentage of admissions revenues and concession supplies, which are expressed as a percentage of concession revenues. |
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Table of Contents
Three months ended June 30, 2010 and 2009
Revenues. Total revenues increased $21.9 million to $539.4 million for the three months ended
June 30, 2010 (second quarter of 2010) from $517.5 million for the three months ended June 30,
2009 (second quarter of 2009), representing a 4.2% increase. The table below, presented by
reportable operating segment, summarizes our year-over-year revenue performance and certain key
performance indicators that impact our revenues.
International Operating | ||||||||||||||||||||||||||||||||||||
U.S. Operating Segment | Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2010 | 2009 | Change | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||||||||||||
Admissions revenues (1) |
$ | 269.2 | $ | 276.2 | (2.5 | )% | $ | 83.9 | $ | 62.9 | 33.4 | % | $ | 353.1 | $ | 339.1 | 4.1 | % | ||||||||||||||||||
Concession revenues (1) |
$ | 129.6 | $ | 131.2 | (1.2 | )% | $ | 35.6 | $ | 27.7 | 28.5 | % | $ | 165.2 | $ | 158.9 | 4.0 | % | ||||||||||||||||||
Other revenues (1) (2) |
$ | 11.0 | $ | 11.1 | (0.9 | )% | $ | 10.1 | $ | 8.4 | 20.2 | % | $ | 21.1 | $ | 19.5 | 8.2 | % | ||||||||||||||||||
Total revenues (1) (2) |
$ | 409.8 | $ | 418.5 | (2.1 | )% | $ | 129.6 | $ | 99.0 | 30.9 | % | $ | 539.4 | $ | 517.5 | 4.2 | % | ||||||||||||||||||
Attendance (1) |
41.6 | 43.9 | (5.2 | )% | 18.6 | 17.2 | 8.1 | % | $ | 60.2 | 61.1 | (1.5 | )% | |||||||||||||||||||||||
Revenues per average screen (2) |
$ | 107,077 | $ | 109,438 | (2.2 | )% | $ | 121,159 | $ | 95,431 | 27.0 | % | $ | 110,154 | $ | 106,450 | 3.5 | % |
(1) | Amounts in millions. | |
(2) | U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 17 of our condensed consolidated financial statements. |
| Consolidated. The increase in admissions revenues of $14.0 million was primarily attributable to a 5.8% increase in average ticket price from $5.55 for the second quarter of 2009 to $5.87 for the second quarter of 2010, partially offset by a 1.5% decrease in attendance. The increase in concession revenues of $6.3 million was primarily attributable to a 5.4% increase in concession revenues per patron from $2.60 for the second quarter of 2009 to $2.74 for the second quarter of 2010, partially offset by the 1.5% decrease in attendance. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The 8.2% increase in other revenues was primarily due to increases in ancillary revenue and the favorable impact of exchange rates in certain countries in which we operate. | |
| U.S. The decrease in admissions revenues of $7.0 million was primarily attributable to a 5.2% decrease in attendance, partially offset by a 2.9% increase in average ticket price from $6.29 for the second quarter of 2009 to $6.47 for the second quarter of 2010. The decrease in concession revenues of $1.6 million was primarily attributable to the 5.2% decrease in attendance, partially offset by a 4.3% increase in concession revenues per patron from $2.99 for the second quarter of 2009 to $3.12 for the second quarter of 2010. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the increase in concession revenues per patron was primarily due to price increases. | |
| International. The increase in admissions revenues of $21.0 million was primarily attributable to an 8.1% increase in attendance and a 23.2% increase in average ticket price from $3.66 for the second quarter of 2009 to $4.51 for the second quarter of 2010. The increase in concession revenues of $7.9 million was primarily attributable to the 8.1% increase in attendance and an 18.6% increase in concession revenues per patron from $1.61 for the second quarter of 2009 to $1.91 for the second quarter of 2010. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The 20.2% increase in other revenues was primarily due to increases in ancillary revenue and the favorable impact of exchange rates in certain countries in which we operate. |
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Table of Contents
Cost of Operations. The table below summarizes certain of our theatre operating costs by
reportable operating segment (in millions).
International Operating | ||||||||||||||||||||||||
U.S. Operating Segment | Segment | Consolidated | ||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
Film rentals and advertising |
$ | 150.7 | $ | 158.8 | $ | 42.8 | $ | 32.1 | $ | 193.5 | $ | 190.9 | ||||||||||||
Concession supplies |
15.6 | 17.2 | 8.9 | 6.8 | 24.5 | 24.0 | ||||||||||||||||||
Salaries and wages |
44.7 | 43.8 | 11.6 | 8.2 | 56.3 | 52.0 | ||||||||||||||||||
Facility lease expense |
45.1 | 45.1 | 16.9 | 14.1 | 62.0 | 59.2 | ||||||||||||||||||
Utilities and other |
40.5 | 40.7 | 17.2 | 13.4 | 57.7 | 54.1 |
| Consolidated. Film rentals and advertising costs were $193.5 million, or 54.8% of admissions revenues, for the second quarter of 2010 compared to $190.9 million, or 56.3% of admissions revenues, for the second quarter of 2009. The decrease in the film rentals and advertising rate was primarily due to favorable film rental rates on certain films in the U.S. segment in the second quarter of 2010. Concession supplies expense was $24.5 million, or 14.8% of concession revenues, for the second quarter of 2010 compared to $24.0 million, or 15.1% of concession revenues, for the second quarter of 2009. The decrease in the concession supplies rate was primarily due to favorable inventory procurement costs and the successful implementation of price increases in the U.S. segment. | |
Salaries and wages increased to $56.3 million for the second quarter of 2010 from $52.0 million for the second quarter of 2009 primarily due to increased minimum wages in both our U.S. and international segments, increased staffing levels to support the 8.1% increase in attendance in our international segment and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $62.0 million for the second quarter of 2010 from $59.2 million for the second quarter of 2009 primarily due to increased percentage rent in our international segment and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $57.7 million for the second quarter of 2010 from $54.1 million for the second quarter of 2009 primarily due to increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate. | ||
| U.S. Film rentals and advertising costs were $150.7 million, or 56.0% of admissions revenues, for the second quarter of 2010 compared to $158.8 million, or 57.5% of admissions revenues, for the second quarter of 2009. The decrease in film rentals and advertising costs of $8.1 million is due to a $7.0 million decrease in admissions revenues, which contributed $4.1 million and a decrease in our film rentals and advertising rate, which contributed $4.0 million. The decrease in the film rentals and advertising rate was primarily due to favorable film rental rates on certain films in the second quarter of 2010. Concession supplies expense was $15.6 million, or 12.0% of concession revenues, for the second quarter of 2010 compared to $17.2 million, or 13.1% of concession revenues, for the second quarter of 2009. The decrease in concession supplies expense is primarily due to a decrease in the concession supplies rate due to favorable inventory procurement costs and the successful implementation of price increases. | |
Salaries and wages increased to $44.7 million for the second quarter of 2010 from $43.8 million for the second quarter of 2009 primarily due to increased minimum wages, partially offset by reduced staffing levels due to the 5.2% decrease in attendance. Facility lease expense remained constant at $45.1 million for the second quarter of 2009 and 2010. Utilities and other costs decreased to $40.5 million for the second quarter of 2010 from $40.7 million for the second quarter of 2009 primarily due to decreased repairs and maintenance expense and decreased theatre supplies expense, partially offset by increased 3-D equipment rental fees. | ||
| International. Film rentals and advertising costs were $42.8 million for the second quarter of 2010 compared to $32.1 million for the second quarter of 2009, or 51.0% of admissions revenues for each period. The increase in film rentals and advertising costs of $10.7 million was primarily due to a $21.0 million increase in admissions revenues. Concession supplies expense was $8.9 million, or 25.0% of concession revenues, for the second quarter of 2010 compared to $6.8 million, or 24.5% of concession revenues, for the second quarter of 2009. The increase in concession supplies expense of $2.1 million was primarily due to a $7.9 million increase in concession revenues. | |
Salaries and wages increased to $11.6 million for the second quarter of 2010 from $8.2 million for the second quarter of 2009 primarily due to increased staffing levels to support the 8.1% increase in attendance, increased minimum wages and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $16.9 million for the |
28
Table of Contents
second quarter of 2010 from $14.1 million for the second quarter of 2009 primarily due to increased percentage rent and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $17.2 million for the second quarter of 2010 from $13.4 million for the second quarter of 2009 primarily due to increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to $25.0
million for the second quarter of 2010 from $23.7 million for the second quarter of 2009. The
increase was primarily due to increased salaries and incentive compensation expense, increased
professional fees and increased service charges related to increased credit card activity and the
impact of exchange rates in certain countries in which we operate.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable /unfavorable leases, was $34.9 million for the second quarter of 2010 compared to
$37.9 million for the second quarter of 2009. The decrease was primarily related to a reduction in
the depreciable basis of certain of our U.S. assets due to a significant amount of the equipment
acquired in the Century Acquisition becoming fully depreciated during the fourth quarter of 2009,
partially offset by the impact of accelerated depreciation taken on our domestic 35 millimeter
projection systems that will be replaced with digital projection systems. We recorded approximately
$2.4 million of depreciation expense related to these 35 millimeter projection systems during the
second quarter of 2010.
Impairment of Long-Lived Asset. We recorded asset impairment charges on assets held and used
of $4.6 million for the second quarter of 2010 compared to $3.9 million for the second quarter of
2009. Impairment charges for the second quarter of 2010 consisted of $3.5 million of theatre
properties, impacting ten of our twenty-four reporting units, and $1.1 million of intangible assets
associated with Mexico theatre properties. Impairment charges for the second quarter of 2009
consisted of $3.9 million of theatre properties, impacting nine of our twenty-four reporting units.
The long-lived asset impairment charges recorded during each of the periods presented were specific
to theatres that were directly and individually impacted by increased competition, or adverse
changes in market demographics. See Notes 13 and 14 to our condensed consolidated financial
statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $1.2
million during the second quarter of 2010 and the second quarter of 2009.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were
$28.6 million for the second quarter of 2010 compared to $25.6 million for the second quarter of
2009. The increase was primarily due to increases in interest rates on our variable rate debt
related to the amendment and extension of our senior secured credit facility.
Interest Income. We recorded interest income of $1.4 million during the second quarter of 2010
compared to $0.9 million during the second quarter of 2009. The increase was primarily due to an
increase in our cash investments.
Loss on Early Retirement of Debt. During the second quarter of 2009, we recorded a loss on
early retirement of debt of $26.8 million as a result of the tender premiums paid and other fees
related to the repurchase of approximately $402.5 million aggregate principal amount at maturity of
Cinemark, Inc.s 9 3/4% senior discount notes and the write-off of unamortized debt issue costs
associated with these notes.
Distributions from NCM. We recorded distributions from NCM of $1.3 million during the second
quarter of 2010 and $5.0 million during the second quarter of 2009, which were in excess of the
carrying value of our investment. See Note 7 to our condensed consolidated financial statements.
Income Taxes. Income tax expense of $10.2 million was recorded for the second quarter of 2010
compared to $4.3 million for the second quarter of 2009. The effective tax rate was 20.0% for the
second quarter of 2010 compared to 17.9% for the second quarter of 2009. Income tax expense for the
second quarter of 2010 includes the impact of the reduction of our liabilities for uncertain tax
positions due to settlements and closures of various tax years, which resulted in a benefit of
approximately $8.0 million. Income tax expense for the second quarter of 2009 includes the impact
of two discrete items, including an adjustment to our deferred tax liability and an increase to our
foreign unrecognized tax benefits in accordance with FIN 48. The net impact of these two items on
income tax expense for the second quarter of 2009 was a benefit of approximately $4.9 million.
Income tax provisions for interim (quarterly) periods are based on estimated annual income tax
rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete
items) occurring during the interim period. As a result, the interim rate may vary significantly
from the normalized annual rate.
29
Table of Contents
Six months ended June 30, 2010 and 2009
Revenues. Total revenues increased $112.7 million to $1,056.0 million for the six months ended
June 30, 2010 (the 2010 period) from $943.3 million for the six months ended June 30, 2009 (the
2009 period), representing an 11.9% increase. The table below, presented by reportable operating
segment, summarizes our year-over-year revenue performance and certain key performance indicators
that impact our revenues.
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Six Months Ended | Six Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2010 | 2009 | Change | 2010 | 2009 | Change | 2010 | 2009 | Change | ||||||||||||||||||||||||||||
Admissions revenues (1) |
$ | 528.5 | $ | 501.7 | 5.3 | % | $ | 167.6 | $ | 117.3 | 42.9 | % | $ | 696.1 | $ | 619.0 | 12.5 | % | ||||||||||||||||||
Concession revenues (1) |
$ | 248.1 | $ | 237.2 | 4.6 | % | $ | 70.2 | $ | 51.7 | 35.8 | % | $ | 318.3 | $ | 288.9 | 10.2 | % | ||||||||||||||||||
Other revenues (1) (2) |
$ | 20.5 | $ | 20.2 | 1.5 | % | $ | 21.1 | $ | 15.2 | 38.8 | % | $ | 41.6 | $ | 35.4 | 17.5 | % | ||||||||||||||||||
Total revenues (1) (2) |
$ | 797.1 | $ | 759.1 | 5.0 | % | $ | 258.9 | $ | 184.2 | 40.6 | % | $ | 1,056.0 | $ | 943.3 | 11.9 | % | ||||||||||||||||||
Attendance (1) |
81.2 | 81.2 | 0.0 | % | 37.5 | 34.0 | 10.3 | % | 118.7 | 115.2 | 3.0 | % | ||||||||||||||||||||||||
Revenues per average screen
(2) |
$ | 208,272 | $ | 200,379 | 3.9 | % | $ | 242,459 | $ | 177,636 | 36.5 | % | $ | 215,730 | $ | 195,452 | 10.4 | % |
(1) | Amounts in millions. | |
(2) | U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 17 of our condensed consolidated financial statements. |
| Consolidated. The increase in admissions revenues of $77.1 million was primarily attributable to a 3.0% increase in attendance and a 9.1% increase in average ticket price from $5.37 for the 2009 period to $5.86 for the 2010 period. The increase in concession revenues of $29.4 million was primarily attributable to the 3.0% increase in attendance and a 6.8% increase in concession revenues per patron from $2.51 for the 2009 period to $2.68 for the 2010 period. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The 17.5% increase in other revenues was primarily due to increases in ancillary revenue and the favorable impact of exchange rates in certain countries in which we operate. | |
| U.S. The increase in admissions revenues of $26.8 million was primarily attributable to a 5.3% increase in average ticket price from $6.18 for the 2009 period to $6.51 for the 2010 period. The increase in concession revenues of $10.9 million was primarily attributable to a 4.8% increase in concession revenues per patron from $2.92 for the 2009 period to $3.06 for the 2010 period. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the increase in concession revenues per patron was primarily due to price increases. | |
| International. The increase in admissions revenues of $50.3 million was primarily attributable to a 10.3% increase in attendance and a 29.6% increase in average ticket price from $3.45 for the 2009 period to $4.47 for the 2010 period. The increase in concession revenues of $18.5 million was primarily attributable to the 10.3% increase in attendance and a 23.0% increase in concession revenues per patron from $1.52 for the 2009 period to $1.87 for the 2010 period. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to price increases and the favorable impact of exchange rates in certain countries in which we operate. The increase in other revenues of $5.9 million was primarily due to increases in ancillary revenue and the favorable impact of exchange rates in certain countries in which we operate. |
30
Table of Contents
Cost of Operations. The table below summarizes certain of our year-over-year theatre operating
costs by reportable operating segment (in millions).
International Operating | ||||||||||||||||||||||||
U.S. Operating Segment | Segment | Consolidated | ||||||||||||||||||||||
Six Months Ended | Six Months Ended | Six Months Ended | ||||||||||||||||||||||
June 30, | June 30, | June 30, | ||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||
Film rentals and advertising |
$ | 299.2 | $ | 278.8 | $ | 83.1 | $ | 59.2 | $ | 382.3 | $ | 338.0 | ||||||||||||
Concession supplies |
29.5 | 30.6 | 17.4 | 13.1 | 46.9 | 43.7 | ||||||||||||||||||
Salaries and wages |
87.1 | 81.1 | 21.7 | 15.3 | 108.8 | 96.4 | ||||||||||||||||||
Facility lease expense |
90.8 | 87.7 | 33.9 | 27.2 | 124.7 | 114.9 | ||||||||||||||||||
Utilities and other |
80.1 | 77.6 | 32.8 | 25.3 | 112.9 | 102.9 |
| Consolidated. Film rentals and advertising costs were $382.3 million, or 54.9% of admissions revenues, for the 2010 period compared to $338.0 million, or 54.6% of admissions revenues, for the 2009 period. The increase in film rentals and advertising costs of $44.3 million was due to a $77.1 million increase in admissions revenues, which contributed $42.1 million, and an increase in our film rentals and advertising rate, which contributed $2.2 million. The increase in the film rentals and advertising rate was primarily due to higher film rental rates in the U.S. segment due to the increase in the number of blockbuster films released, including the carryover of Avatar, which generally have higher film rental rates. Concession supplies expense was $46.9 million, or 14.7% of concession revenues, for the 2010 period, compared to $43.7 million, or 15.1% of concession revenues, for the 2009 period. The decrease in the concession supplies rate was primarily due to favorable inventory procurement costs and the successful implementation of price increases in the U.S. segment. | |
Salaries and wages increased to $108.8 million for the 2010 period from $96.4 million for the 2009 period primarily due to new theatres, increased minimum wages in both our U.S. and international segments, increased staffing levels to support the 10.3% increase in attendance in our international segment and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $124.7 million for the 2010 period from $114.9 million for the 2009 period primarily due to new theatres, increased percentage rent and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $112.9 million for the 2010 period from $102.9 million for the 2009 period primarily due to new theatres, increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate. | ||
| U.S. Film rentals and advertising costs were $299.2 million, or 56.6% of admissions revenues for the 2010 period compared to $278.8 million, or 55.6% of admissions revenues, for the 2009 period. The increase in film rentals and advertising costs of $20.4 million is due to a $26.8 million increase in admissions revenues, which contributed $14.9 million and an increase in our film rentals and advertising rate, which contributed $5.5 million. The increase in the film rentals and advertising rate was primarily due to the increase in the number of blockbuster films released, including the carryover of Avatar, which generally have higher film rental rates. Concession supplies expense was $29.5 million, or 11.9% of concession revenues, for the 2010 period, compared to $30.6 million, or 12.9% of concession revenues, for the 2009 period. The decrease in concession supplies expense is primarily due to a decrease in the concession supplies rate due to favorable inventory procurement costs and the successful implementation of price increases. | |
Salaries and wages increased to $87.1 million for the 2010 period from $81.1 million for the 2009 period primarily due to new theatres and increased minimum wages. Facility lease expense increased to $90.8 million for the 2010 period from $87.7 million for the 2009 period primarily due to new theatres and increased percentage rent. Utilities and other costs increased to $80.1 million for the 2010 period from $77.6 million for the 2009 period primarily due to new theatres and increased 3-D equipment rental fees. | ||
| International. Film rentals and advertising costs were $83.1 million, or 49.6% of admissions revenues, for the 2010 period compared to $59.2 million, or 50.5% of admissions revenues, for the 2009 period. The increase in film rentals and advertising costs was primarily due to a $50.3 million increase in admissions revenues, partially offset by a lower film rentals and advertising rate. Concession supplies expense was $17.4 million, or 24.8% of concession revenues, for the 2010 period compared to $13.1 million, or 25.3% of concession revenues, for the 2009 period. The increase in concession supplies expense of $4.3 million was primarily due to an $18.5 million increase in concession revenues, partially offset by a lower concession supplies rate. |
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Salaries and wages increased to $21.7 million for the 2010 period from $15.3 million for the 2009 period primarily due to new theatres, increased staffing levels to support the 10.3% increase in attendance, increased minimum wages and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $33.9 million for the 2010 period from $27.2 million for the 2009 period primarily due to new theatres, increased percentage rent and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $32.8 million for the 2010 period from $25.3 million for the 2009 period primarily due to new theatres, increased 3-D equipment rental fees and the impact of exchange rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to $50.5
million for the 2010 period from $45.5 million for the 2009 period. The increase was primarily due
to increased salaries and incentive compensation expense, increased professional fees and increased
service charges related to increased credit card activity and the impact of exchange rates in
certain countries in which we operate.
Depreciation and Amortization. Depreciation and amortization expense, including amortization
of favorable/unfavorable leases, was $69.0 million for the 2010 period compared to $74.3 million
for the 2009 period. The decrease was primarily related to a reduction in the depreciable basis of
certain of our U.S. assets due to a significant amount of the equipment acquired in the Century
Acquisition becoming fully depreciated during the fourth quarter of 2009, partially offset by the
impact of accelerated depreciation taken on our domestic 35 millimeter projection systems that will
be replaced with digital projection systems. We recorded approximately $3.7 million of depreciation
expense related to these 35 millimeter projection systems during the 2010 period.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $5.0 million for the 2010 period compared to $5.0 million for the 2009 period. Impairment
charges for the 2010 period consisted of $3.9 million of theatre properties, impacting fifteen of
our twenty-four reporting units, and $1.1 million of intangible assets associated with Mexico
theatre properties. Impairment charges for the 2009 period consisted of $4.9 million of theatre
properties, impacting twelve of our twenty-four reporting units, and $0.1 million of intangible
assets associated with Mexico theatre properties. The long-lived asset impairment charges recorded
during each of the periods presented were specific to theatres that were directly and individually
impacted by increased competition, or adverse changes in market demographics. See Notes 13 and 14
to our condensed consolidated financial statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $4.4
million during the 2010 period compared to $1.5 million during the 2009 period. The loss recorded
during the 2010 period included $1.7 million that was recorded upon the contribution of digital
projection systems to DCIP and an additional $0.3 million recorded upon the subsequent sale of
digital projection systems to DCIP. See Note 8 to the condensed consolidated financial statements.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were
$54.6 million for the 2010 period compared to $51.1 million for the 2009 period. The increase was
primarily due to increases in interest rates on our variable rate debt related to the amendment and
extension of our senior secured credit facility.
Interest Income. We recorded interest income of $2.4 million during the 2010 period compared
to $2.8 million during the 2009 period. The decrease in interest income was primarily due to lower
interest rates earned on our cash investments.
Loss on Early Retirement of Debt. During the 2009 period, we recorded a loss on early
retirement of debt of $26.8 million as a result of the tender premiums paid and other fees related
to the repurchase of approximately $402.5 million aggregate principal amount at maturity of
Cinemark, Inc.s 9 3/4% senior discount notes and the write-off of unamortized debt issue costs
associated with these notes.
Distributions from NCM. We recorded distributions from NCM of $11.3 million during the 2010
period and $11.6 million during the 2009 period, which were in excess of the carrying value of our
investment. See Note 7 to our condensed consolidated financial statements.
Income Taxes. Income tax expense of $30.0 million was recorded for the 2010 period compared to
$19.0 million for the 2009 period. The effective tax rate was 27.9% for the 2010 period compared to
33.2% for the 2009 period. Income tax expense for the 2010 period includes the impact of certain
discrete non-recurring items and the reduction of our liabilities for uncertain tax positions due
to settlements and closures of various tax years, which resulted in a benefit of approximately $8.9
million. Income tax expense for the 2009 period includes the impact of two discrete items,
including an adjustment to our deferred tax liability and an increase to our foreign unrecognized
tax benefits in
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accordance with FIN 48. The net impact of the two items on income tax expense for
the 2009 period was a benefit of approximately $4.9 million. Income tax provisions for interim (quarterly) periods
are based on estimated annual income tax rates and are adjusted for the effects of significant,
infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result,
the interim rate may vary significantly from the normalized annual rate.
Liquidity and Capital Resources
Operating Activities
We primarily collect our revenues in cash, mainly through box office receipts and the
sale of concessions. In addition, a majority of our theatres provide the patron a choice of using a
credit card, in place of cash, which we convert to cash over a range from one to six 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. Cash provided by
operating activities was $108.1 million for the six months ended June 30, 2010 compared to cash
used for operating activities of $10.7 million for the six months ended June 30, 2009. Cash used
for operating activities for the six months ended June 30, 2009 included the repurchase of
approximately $402.5 million of our 9 3/4% senior discount notes, which included payment of $152.0
million of interest that had accreted on the senior discount notes since issuance during 2004. The
principal portion of the repurchase is reflected as a financing activity.
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. Cash used for investing activities was $55.5 million for the six months ended June
30, 2010 compared to $110.7 million for the six months ended June 30, 2009. Cash used for investing
activities for the six months ended June 30, 2009 included $49.0 million related to the acquisition
of theatres in the U.S. See Note 6 to the condensed consolidated financial statements.
Capital expenditures for the six months ended June 30, 2010 and 2009 were as follows (in
millions):
New | Existing | |||||||||||
Period | Theatres | Theatres | Total | |||||||||
Six Months Ended June 30, 2010 |
$ | 18.6 | $ | 38.4 | $ | 57.0 | ||||||
Six Months Ended June 30, 2009 |
$ | 24.0 | $ | 36.9 | $ | 60.9 |
We continue to expand our U.S. theatre circuit. We built one theatre and 13 screens,
assumed operation of one theatre with eight screens, and closed two theatres with 13 screens during
the six months ended June 30, 2010, bringing our total domestic screen count to 3,838. At June 30,
2010, we had signed commitments to open four new theatres with 51 screens in domestic markets
during the remainder of 2010 and open six new theatres with 85 screens subsequent to 2010. We
estimate the remaining capital expenditures for the development of these 136 domestic screens will
be approximately $54 million. Actual expenditures for continued theatre development and
acquisitions are subject to change based upon the availability of attractive opportunities.
We also continue to expand our international theatre circuit. We built three theatres
with 20 screens and closed two theatres and 17 screens during the six months ended June 30, 2010,
bringing our total international screen count to 1,069. At June 30, 2010, we had signed commitments
to open six new theatres with 46 screens in international markets during the remainder of 2010 and
open six new theatres with 41 screens subsequent to 2010. We estimate the remaining capital
expenditures for the development of these 87 international screens will be approximately $55
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 with cash flow from
operations, borrowings under our senior secured credit facility, from debt issuances, proceeds from
sale leaseback transactions and/or sales of excess real estate.
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Financing Activities
Cash used for financing activities was $53.7 million for the six months ended June 30, 2010
compared to cash provided by financing activities of $146.6 million for the six months ended June
30, 2009. Cash provided by financing activities for the six months ended June 30, 2009 included the
net proceeds of $458.5 million from the issuance of our $470 million 8.625% senior notes, partially
offset by the repurchase of approximately $402.5 million of our 9 3/4% senior discount notes, the
aggregate principal portion of which was $250.5 million. The interest portion of the repurchase is
reflected as an operating activity.
On February 13, 2010, our board of directors declared a cash dividend for the fourth quarter
of 2009 in the amount of $0.18 per share of common stock payable to stockholders of record on March
5, 2010. The dividend was paid on March 19, 2010 in the total amount of approximately $20.0
million. On May 13, 2010, our board of directors declared a cash dividend for the first quarter of
2010 in the amount of $0.18 per share of common stock payable to stockholders of record on June 4,
2010. The dividend was paid on June 18, 2010 in the total amount of approximately $20.2 million.
We may from time to time, subject to compliance with our debt instruments, purchase our debt
securities on the open market depending upon the availability and prices of such securities.
Long-term debt consisted of the following as of June 30, 2010 and December 31, 2009:
June 30, 2010 | December 31, 2009 | |||||||
Cinemark, USA, Inc. term loan |
$ | 1,078.2 | $ | 1,083.6 | ||||
Cinemark USA, Inc. 8 ⅝% senior notes due 2019 (1) |
459.3 | 458.9 | ||||||
Cinemark USA, Inc. 9% senior subordinated notes due 2013 |
0.2 | 0.2 | ||||||
Other long-term debt |
0.2 | 1.0 | ||||||
Total long-term debt |
1,537.9 | 1,543.7 | ||||||
Less current portion |
11.1 | 12.2 | ||||||
Long-term debt, less current portion |
$ | 1,526.8 | $ | 1,531.5 | ||||
(1) | Includes the $470.0 million aggregate principal amount of the 8.625% senior notes before the original issue discount, which was $10.7 million as of June 30, 2010. |
As of June 30, 2010, we had borrowings of $1,078.2 million outstanding on the term loan
under our senior secured credit facility, $459.3 million accreted principal amount outstanding
under our 8.625% senior discount notes and approximately $0.2 million aggregate principal amount
outstanding under the 9% senior subordinated notes, respectively. We had $150.0 million in
available borrowing capacity on our revolving credit line.
As of June 30, 2010, our long-term debt obligations, scheduled interest payments on long-term
debt, future minimum lease obligations under non-cancelable operating and capital leases, scheduled
interest payments under capital leases and other obligations for each period indicated are
summarized as follows:
Payments Due by Period | ||||||||||||||||||||
(in millions) | ||||||||||||||||||||
Less Than | After | |||||||||||||||||||
Contractual Obligations | Total | One Year | 1 - 3 Years | 4 - 5 Years | 5 Years | |||||||||||||||
Long-term debt (1) |
$ | 1,548.6 | $ | 11.1 | $ | 132.9 | $ | 61.1 | $ | 1,343.5 | ||||||||||
Scheduled interest payments on long-term debt (2) |
581.7 | 88.0 | 173.1 | 143.8 | 176.8 | |||||||||||||||
Operating lease obligations |
1,781.5 | 187.8 | 370.1 | 352.8 | 870.8 | |||||||||||||||
Capital lease obligations |
139.0 | 7.3 | 16.4 | 20.9 | 94.4 | |||||||||||||||
Scheduled interest payments on capital leases |
102.0 | 13.8 | 25.4 | 21.6 | 41.2 | |||||||||||||||
Employment agreements |
11.1 | 3.7 | 7.4 | | | |||||||||||||||
Purchase commitments (3) |
120.1 | 43.9 | 75.8 | 0.3 | 0.1 | |||||||||||||||
Current liability for uncertain tax positions (4) |
2.7 | 2.7 | | | | |||||||||||||||
Total obligations |
$ | 4,286.7 | $ | 358.3 | $ | 801.1 | $ | 600.5 | $ | 2,526.8 | ||||||||||
(1) | Includes the 8.625% senior notes in the aggregate principal amount of $470.0 million, excluding the discount of $10.7 million. | |
(2) | Amounts include scheduled interest payments on fixed rate and variable rate debt agreements. Estimates for the variable rate interest payments were based on interest rates in effect on June 30, 2010. The average interest rates on our fixed rate and variable rate debt were 8.1% and 3.3%, respectively, as of June 30, 2010. | |
(3) | Includes estimated capital expenditures associated with the construction of new theatres to which we were committed as of June 30, 2010. | |
(4) | The contractual obligations table excludes the long-term portion of our liability for uncertain tax positions of $15.8 million because we cannot make a reliable estimate of the timing of the related cash payments. |
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Senior Secured Credit Facility
On October 5, 2006, in connection with the Century Acquisition, Cinemark USA, Inc. entered
into a senior secured credit facility that provided for a $1.12 billion term loan and a $150
million revolving credit line. On March 2, 2010, Cinemark USA, Inc. completed an amendment and
extension to the senior secured credit facility to primarily extend the maturities of the facility
and make certain other modifications. Approximately $924.4 million of Cinemark USA, Inc.s then
remaining outstanding $1,083.6 million term loan debt was extended from an original maturity date
of October 2013 to a maturity date of April 2016. The remaining term loan debt of $159.2 million
that was not extended matures on the original maturity date of October 2013. Payments on the
extended amount are due in equal quarterly installments of approximately $2.3 million beginning
March 31, 2010 through March 31, 2016 with the remaining principal amount of approximately $866.6
million due April 30, 2016. Payments on the original amount that was not extended are due in equal
quarterly installments of approximately $0.4 million beginning March 31, 2010 through September 30,
2012 and increase to $37.4 million each calendar quarter from December 31, 2012 to June 30, 2013,
with one final payment of approximately $42.6 million due at maturity on October 5, 2013. The
amendment also imposed a 1.0% prepayment premium for one year on certain prepayments of the
extended portion of the term loan debt.
The interest rate on the original term loan debt that was not extended accrues interest, at
Cinemark USA, Inc.s option, at: (A) the base rate equal to the higher of (1) the prime lending
rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds
effective rate from time to time plus 0.50% (the base rate), plus a margin that ranges from 0.50%
to 0.75% per annum, or (B) a eurodollar rate plus a margin that ranges from 1.50% to 1.75%, per
annum. The margin of the original term loan debt is a function of the applicable corporate credit
rating. The interest rate on the extended portion of the term loan debt accrues interest, at
Cinemark USA, Inc.s option at: (A) the base rate equal to the higher of (1) the prime lending rate
as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective
rate from time to time plus 0.50%, plus a 2.25% margin per annum, or (B) a eurodollar rate plus a
3.25% margin per annum.
The maturity date of $73.5 million of Cinemark USA, Inc.s $150.0 million revolving credit
line was extended from October 2012 to March 2015. The maturity date of the remaining $76.5 million
of Cinemark USA, Inc.s revolving credit line did not change and remains October 2012. The interest
rate on the original revolving credit line accrues interest, at Cinemark USA, Inc.s option, at:
(A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British
Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus
0.50%, plus a margin that ranges from 0.50% to 1.00% per annum, or (B) a eurodollar rate plus a
margin that ranges from 1.50% to 2.00% per annum. The interest rate on the extended revolving
credit line accrues interest, at Cinemark USA, Inc.s option at: (A) the base rate equal to the
higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page
5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges
from 1.75% to 2.0% per annum, or (B) a eurodollar rate plus a margin that ranges from 2.75% to
3.0% per annum. The margin of the revolving credit line is a function of the consolidated net
senior secured leverage ratio as defined in the credit agreement.
At June 30, 2010, there was $1,078.2 million outstanding under the term loan and no borrowings
outstanding under the revolving credit line. Cinemark USA, Inc. had $150.0 million in available
borrowing capacity on the revolving credit line. The average interest rate on outstanding term loan
borrowings under the senior secured credit facility at June 30, 2010 was 4.4% per annum.
See discussion of interest rate swap agreements under Item 3. Quantitative and Qualitative
Disclosures About Market Risk.
Cinemark USA, Inc. 8 ⅝% Senior Notes
On June 29, 2009, Cinemark USA, Inc. issued $470.0 million aggregate principal amount of
8.625% senior notes due 2019 with an original issue discount of approximately $11.5 million,
resulting in proceeds of approximately $458.5 million. The proceeds were primarily used to fund the
repurchase of $402.5 million aggregate principal amount at maturity of Cinemark,
Inc.s 9 3/4% senior discount notes. Interest is payable on June 15 and December 15 of each year
beginning on December 15, 2009. The senior notes mature on June 15, 2019. As of June 30, 2010, the
carrying value of the senior notes was approximately $459.3 million.
The indenture to the senior notes contains covenants that limit, among other things, the
ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) consummate specified asset
sales, (2) make investments or other restricted
payments, including paying dividends, making other distributions or repurchasing subordinated
debt or equity, (3) incur
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additional indebtedness and issue preferred stock, (4) enter into
transactions with affiliates, (5) enter new lines of business, (6) merge or consolidate with, or
sell all or substantially all of its assets to another person and (7) create liens. Upon a change
of control of Cinemark Holdings, Inc. or Cinemark USA, Inc., Cinemark USA, Inc. would be required
to make an offer to repurchase the senior notes at a price equal to 101% of the aggregate principal
amount outstanding plus accrued and unpaid interest through the date of repurchase. Certain asset
dispositions are considered triggering events that may require Cinemark USA, Inc. to use the
proceeds from those asset dispositions to make an offer to purchase the notes at 100% of their
principal amount, plus accrued and unpaid interest, if any, to the date of repurchase if such
proceeds are not otherwise used within 365 days as described in the indenture. The indenture
governing the senior notes allows Cinemark USA, Inc. to incur additional indebtedness if we satisfy
the coverage ratio specified in the indenture, after giving effect to the incurrence of the
additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is
2 to 1and our actual ratio as of June 30, 2010 was 5.2 to 1.
Cinemark USA, Inc. 9% Senior Subordinated Notes
On February 11, 2003, Cinemark USA, Inc. issued $150 million aggregate principal amount of 9%
senior subordinated notes due 2013 and on May 7, 2003, Cinemark USA, Inc. issued an additional $210
million aggregate principal amount of 9% senior subordinated notes due 2013, collectively referred
to as the 9% senior subordinated notes. Interest is payable on February 1 and August 1 of each
year.
Prior to 2009, Cinemark USA, Inc. repurchased a total of $359.8 million aggregate principal
amount of its 9% senior subordinated notes. The transactions were funded by Cinemark USA, Inc. with
proceeds from the NCM Transaction and available cash from operations. Cinemark USA, Inc. also
executed a supplemental indenture removing substantially all of the restrictive covenants and
certain events of default.
As of June 30, 2010, Cinemark USA, Inc. had outstanding approximately $0.2 million
aggregate principal amount of 9% senior subordinated notes. Cinemark USA, Inc. may redeem the
remaining 9% senior subordinated notes at its option at any time.
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 May to mid-August, and during the holiday season,
extending from early November 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.
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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
We are currently party to variable rate debt facilities. An increase or decrease in interest
rates would affect our interest expense relating to our variable rate debt facilities. At June 30,
2010, there was an aggregate of approximately $778.4 million of variable rate debt outstanding
under these facilities, which excludes $300.0 million of Cinemark USA, Inc.s term loan debt that
is hedged with the Companys interest rate swap agreements as discussed below. Based on the
interest rates in effect on the variable rate debt outstanding at June 30, 2010, a 100 basis point
increase in market interest rates would increase our annual interest expense by approximately $7.8
million.
We have two interest rate swap agreements that have been designated to hedge a total of
approximately $300 million of variable rate debt under our senior secured credit facility. Under
the terms of one of the agreements, which expires in November 2012, we pay a fixed interest rate of
4.922% on $125,000 of variable rate debt and receive interest at a variable rate based on the
3-month LIBOR. Under the terms of the second agreement, we pay a fixed interest rate of 3.63% on
$175,000 of variable rate debt and receive interest at a variable rate based on the 1-month LIBOR.
With respect to the expiration of the second agreement, approximately $100,000 of the hedged amount
expires in November 2012 and the remaining $75,000 expires in November 2013.
The table below provides information about our fixed rate and variable rate long-term debt
agreements as of June 30, 2010:
Expected Maturity for the Twelve-Month Periods Ending June 30, | ||||||||||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Average Interest | ||||||||||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | Fair Value | Rate | ||||||||||||||||||||||||||||
Fixed rate
(1)(2) |
$ | | $ | | $ | 0.2 | $ | | $ | | $ | 770.0 | $ | 770.2 | $ | 752.9 | 8.1% | |||||||||||||||||||
Variable rate |
11.1 | 10.8 | 121.9 | 51.9 | 9.2 | 573.5 | 778.4 | 763.3 | 3.3% | |||||||||||||||||||||||||||
Total debt |
$ | 11.1 | $ | 10.8 | $ | 122.1 | $ | 51.9 | $ | 9.2 | $ | 1,343.5 | $ | 1,548.6 | $ | 1,516.2 | ||||||||||||||||||||
(1) | Includes $300.0 million of the Cinemark USA, Inc. term loan, which represents the debt hedged with the Companys interest rate swap agreements. | |
(2) | Includes the 8.625% senior notes in the aggregate principal amount of $470.0 million, excluding the discount of $10.7 million. |
Foreign Currency Exchange Rate Risk
We are also exposed to market risk arising from changes in foreign currency exchange rates as
a result of our international operations. Generally, we export from the U.S. certain of the
equipment and construction interior finish items and other operating supplies used by our
international subsidiaries. A majority of the revenues and operating expenses of our international
subsidiaries are transacted in the countrys local currency. Generally accepted accounting
principles in the U.S. (U.S. GAAP) 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, U.S. GAAP requires that the U.S. dollar be used as the
functional currency for the subsidiary. Currency fluctuations in the countries in which we operate
result in us reporting exchange gains (losses) or foreign currency translation adjustments. Based
upon our equity ownership in our international subsidiaries as of June 30, 2010, holding everything
else constant, a 10% immediate, simultaneous, unfavorable change in all of the foreign currency
exchange rates to which we are exposed would decrease the aggregate net book value of our
investments in our international subsidiaries by approximately $41 million and would decrease the
aggregate net income of our international subsidiaries by approximately $3 million.
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Item 4. | Controls and Procedures |
Evaluation of the Effectiveness of Disclosure Controls and Procedures
As of June 30, 2010, we carried out an evaluation required by the 1934 Act, under the
supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a-15(e) of the 1934 Act. Based on this evaluation, our principal
executive officer and principal financial officer concluded that, as of June 30, 2010, our
disclosure controls and procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the 1934 Act is
recorded, processed, summarized, and reported within the time periods specified in the SECs rules
and forms and were effective to provide reasonable assurance that such information is accumulated
and communicated to our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 that occurred
during the quarter ended June 30, 2010 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
Previously reported under Business Legal Proceedings in the Companys Annual Report on Form
10-K filed March 10, 2010.
Item 1A. | Risk Factors |
There have been no material changes from risk factors previously disclosed in Risk Factors
in the Companys Annual Report on Form 10-K filed March 10, 2010.
Item 2. | Unregistered Sales of Equity Securities |
On June 14, 2010, the Company issued 1,112,723 shares of its common stock to the Colombian
Partners pursuant to the Exchange Option Agreement between the Company and the Colombian Partners.
Under this option, which was contingent upon completion of an initial public offering of common
stock by the Company, the Colombian Partners were entitled to exchange their shares in Cinemark
Colombia S.A. for shares of the Companys common stock. The number of shares to be exchanged was
determined based on the Companys equity value and the equity value of the Colombian Partners
interest in Cinemark Colombia S.A., both of which are defined in the Exchange Option Agreement. The
issuance of the shares of the Companys common stock under the Exchange Option Agreement was made
by the Company in reliance on the exemption from registration provided pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
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Item 6. | Exhibits |
*31.1 |
Certification of Alan Stock, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*31.2 |
Certification of Robert Copple, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*32.1 |
Certification of Alan Stock, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. | |
*32.2 |
Certification of Robert Copple, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. |
* | filed herewith. |
40
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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.
DATE: August 5, 2010 | CINEMARK HOLDINGS, INC. Registrant |
|||
/s/Alan W. Stock | ||||
Alan W. Stock | ||||
Chief Executive Officer | ||||
/s/Robert Copple | ||||
Robert Copple | ||||
Chief Financial Officer |
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EXHIBIT INDEX
*31.1
|
Certification of Alan Stock, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*31.2
|
Certification of Robert Copple, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*32.1
|
Certification of Alan Stock, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. | |
*32.2
|
Certification of Robert Copple, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002. |
* | filed herewith. |