Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - CINEMARK USA INC /TX | Financial_Report.xls |
EX-32.2 - EX-32.2 - CINEMARK USA INC /TX | d84739exv32w2.htm |
EX-32.1 - EX-32.1 - CINEMARK USA INC /TX | d84739exv32w1.htm |
EX-31.1 - EX-31.1 - CINEMARK USA INC /TX | d84739exv31w1.htm |
EX-31.2 - EX-31.2 - CINEMARK USA INC /TX | d84739exv31w2.htm |
Table of Contents
CINEMARK USA, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) AND (b) OF
FORM 10-Q AND THEREFORE IS FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT
FORM 10-Q AND THEREFORE IS FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT
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
For the quarterly period ended September 30, 2011
Commission File Number: 033-47040
CINEMARK USA, INC.
(Exact name of registrant as specified in its charter)
Texas | 75-2206284 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
3900 Dallas Parkway | ||
Suite 500 | ||
Plano, Texas | 75093 | |
(Address of principal executive offices) | (Zip Code) |
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 þ 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 o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
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 October 31, 2011, 1,500 shares of Class A common stock and 182,648 shares of Class B
common stock were outstanding.
CINEMARK
USA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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. The forward-looking statements include our current
expectations, assumptions, estimates and projections about our business and our industry. They
include statements relating to future revenues, expenses and profitability, the future development
and expected growth of our business, projected capital expenditures, attendance at movies generally
or in any of the markets in which we operate, the number or diversity of popular movies released
and our ability to successfully license and exhibit popular films, national and international
growth in our industry, competition from other exhibitors and alternative forms of entertainment
and determinations in lawsuits in which we are defendants. Forward-looking statements can be
identified by the use of words such as may, should, 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 12, 2011 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 USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data, unaudited)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 511,273 | $ | 464,765 | ||||
Inventories |
11,746 | 11,686 | ||||||
Accounts receivable |
42,843 | 50,607 | ||||||
Income tax receivable |
| 30,733 | ||||||
Current deferred tax asset |
7,030 | 8,099 | ||||||
Prepaid expenses and other |
10,560 | 10,931 | ||||||
Accounts receivable from parent |
7,790 | 6,728 | ||||||
Total current assets |
591,242 | 583,549 | ||||||
Theatre properties and equipment |
2,125,357 | 2,048,204 | ||||||
Less accumulated depreciation and amortization |
916,603 | 832,758 | ||||||
Theatre properties and equipment net |
1,208,754 | 1,215,446 | ||||||
Other assets |
||||||||
Goodwill |
1,154,225 | 1,122,971 | ||||||
Intangible assets net |
342,834 | 329,204 | ||||||
Investment in NCM |
73,638 | 64,376 | ||||||
Investment in DCIP |
10,171 | 10,838 | ||||||
Investment
in marketable securities RealD |
11,433 | 27,993 | ||||||
Investments in and advances to affiliates |
1,542 | 2,619 | ||||||
Deferred charges and other assets net |
72,017 | 70,978 | ||||||
Total other assets |
1,665,860 | 1,628,979 | ||||||
Total assets |
$ | 3,465,856 | $ | 3,427,974 | ||||
Liabilities and equity |
||||||||
Current liabilities |
||||||||
Current portion of long-term debt |
$ | 11,467 | $ | 10,836 | ||||
Current portion of capital lease obligations |
8,064 | 7,348 | ||||||
Income tax payable |
1,368 | | ||||||
Current liability for uncertain tax positions |
463 | 1,948 | ||||||
Accounts payable and accrued expenses |
239,394 | 251,660 | ||||||
Total current liabilities |
260,756 | 271,792 | ||||||
Long-term liabilities |
||||||||
Long-term debt, less current portion |
1,562,970 | 1,521,605 | ||||||
Capital lease obligations, less current portion |
127,198 | 132,812 | ||||||
Deferred tax liability |
134,955 | 129,293 | ||||||
Liability for uncertain tax positions |
21,154 | 17,840 | ||||||
Deferred lease expenses |
33,246 | 30,454 | ||||||
Deferred revenue NCM |
237,217 | 230,573 | ||||||
Other long-term liabilities |
49,573 | 52,900 | ||||||
Total long-term liabilities |
2,166,313 | 2,115,477 | ||||||
Commitments
and contingencies (see Note 20) |
||||||||
Equity |
||||||||
Cinemark USA, Inc.s stockholders equity: |
||||||||
Class A common stock, $0.01 par value: 10,000,000 shares authorized, 1,500
shares issued
and outstanding |
| | ||||||
Class B common stock, no par value: 1,000,000 shares authorized, 239,893
shares issued
and 182,648 shares outstanding |
49,543 | 49,543 | ||||||
Treasury stock, 57,245 Class B shares at cost |
(24,233 | ) | (24,233 | ) | ||||
Additional paid-in-capital |
1,174,143 | 1,167,994 | ||||||
Retained earnings |
(150,381 | ) | (192,385 | ) | ||||
Accumulated other comprehensive income (loss) |
(21,665 | ) | 28,181 | |||||
Total Cinemark USA, Inc.s stockholders equity |
1,027,407 | 1,029,100 | ||||||
Noncontrolling interests |
11,380 | 11,605 | ||||||
Total equity |
1,038,787 | 1,040,705 | ||||||
Total liabilities and equity |
$ | 3,465,856 | $ | 3,427,974 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, unaudited)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
||||||||||||||||
Admissions |
$ | 417,088 | $ | 367,662 | $ | 1,134,697 | $ | 1,063,737 | ||||||||
Concession |
194,794 | 170,130 | 530,828 | 488,464 | ||||||||||||
Other |
28,131 | 22,443 | 78,217 | 64,034 | ||||||||||||
Total revenues |
640,013 | 560,235 | 1,743,742 | 1,616,235 | ||||||||||||
Cost of operations |
||||||||||||||||
Film rentals and advertising |
225,431 | 200,495 | 613,204 | 582,864 | ||||||||||||
Concession supplies |
32,166 | 26,565 | 85,076 | 73,465 | ||||||||||||
Salaries and wages |
60,114 | 56,823 | 168,222 | 165,615 | ||||||||||||
Facility lease expense |
72,318 | 66,587 | 208,111 | 191,292 | ||||||||||||
Utilities and other |
72,679 | 64,310 | 198,082 | 177,179 | ||||||||||||
General and administrative expenses |
32,171 | 27,682 | 91,289 | 77,134 | ||||||||||||
Depreciation and amortization |
40,394 | 34,805 | 119,124 | 103,395 | ||||||||||||
Amortization of favorable/unfavorable leases |
148 | 179 | 455 | 595 | ||||||||||||
Impairment of long-lived assets |
992 | 1,022 | 3,601 | 6,057 | ||||||||||||
Loss on sale of assets and other |
1,809 | 7,548 | 7,975 | 11,906 | ||||||||||||
Total cost of operations |
538,222 | 486,016 | 1,495,139 | 1,389,502 | ||||||||||||
Operating income |
101,791 | 74,219 | 248,603 | 226,733 | ||||||||||||
Other income (expense) |
||||||||||||||||
Interest expense |
(32,249 | ) | (28,938 | ) | (91,316 | ) | (83,553 | ) | ||||||||
Interest income |
2,955 | 1,807 | 6,448 | 4,239 | ||||||||||||
Foreign currency exchange gain (loss) |
(1,858 | ) | 682 | (512 | ) | 762 | ||||||||||
Loss on early retirement of debt |
| | (4,945 | ) | | |||||||||||
Distributions from NCM |
5,108 | 4,263 | 16,530 | 15,541 | ||||||||||||
Equity in income (loss) of affiliates |
1,719 | (1,842 | ) | 2,353 | (4,997 | ) | ||||||||||
Total other expense |
(24,325 | ) | (24,028 | ) | (71,442 | ) | (68,008 | ) | ||||||||
Income before income taxes |
77,466 | 50,191 | 177,161 | 158,725 | ||||||||||||
Income taxes |
29,517 | 16,037 | 62,222 | 46,462 | ||||||||||||
Net income |
$ | 47,949 | $ | 34,154 | $ | 114,939 | $ | 112,263 | ||||||||
Less: Net income attributable to noncontrolling
interests |
728 | 551 | 1,685 | 3,246 | ||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 47,221 | $ | 33,603 | $ | 113,254 | $ | 109,017 | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Nine months ended September 30, | ||||||||
2011 | 2010 | |||||||
Operating activities |
||||||||
Net income |
$ | 114,939 | $ | 112,263 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Depreciation |
116,644 | 100,246 | ||||||
Amortization of intangible and other assets and unfavorable leases |
2,935 | 3,744 | ||||||
Amortization of long-term prepaid rents |
1,976 | 1,247 | ||||||
Amortization of debt issue costs |
3,557 | 3,533 | ||||||
Amortization of deferred revenues, deferred lease incentives and other |
(7,221 | ) | (4,844 | ) | ||||
Amortization of accumulated other comprehensive loss related to interest rate
swap agreement |
3,248 | 3,475 | ||||||
Fair value change in interest rate swap agreements not designated as hedges |
(754 | ) | | |||||
Amortization of bond discount |
633 | 578 | ||||||
Impairment of long-lived assets |
3,601 | 6,057 | ||||||
Share based awards compensation expense |
6,641 | 4,622 | ||||||
Loss on sale of assets and other |
6,937 | 9,873 | ||||||
Loss on contribution and sale of digital projection systems to DCIP |
1,038 | 2,033 | ||||||
Loss on early retirement of debt |
4,945 | | ||||||
Deferred lease expenses |
2,910 | 2,776 | ||||||
Deferred income tax expenses |
10,536 | (13,005 | ) | |||||
Equity in (income) loss of affiliates |
(2,353 | ) | 4,997 | |||||
Tax benefit related to stock option exercises and restricted stock vesting |
910 | 1,904 | ||||||
Distributions from equity investees |
4,599 | 3,292 | ||||||
Changes in assets and liabilities |
16,799 | (89,349 | ) | |||||
Net cash provided by operating activities |
292,520 | 153,442 | ||||||
Investing activities |
||||||||
Additions to theatre properties and equipment |
(126,183 | ) | (88,256 | ) | ||||
Proceeds from sale of theatre properties and equipment |
5,131 | 3,994 | ||||||
Acquisition of ten theatres in Argentina |
(66,958 | ) | | |||||
Investment in joint venture DCIP and other |
(1,268 | ) | (1,510 | ) | ||||
Net cash used for investing activities |
(189,278 | ) | (85,772 | ) | ||||
Financing activities |
||||||||
Dividends paid to parent |
(71,250 | ) | (54,600 | ) | ||||
Payroll taxes paid as a result of noncash stock option exercises and restricted stock withholdings |
(494 | ) | (416 | ) | ||||
Repayments of long-term debt |
(164,587 | ) | (9,144 | ) | ||||
Proceeds from issuance of senior subordinated notes |
200,000 | | ||||||
Payment of debt issue costs |
(4,539 | ) | (8,849 | ) | ||||
Payments on capital leases |
(5,314 | ) | (5,422 | ) | ||||
Purchase of
noncontrolling interest in Cinemark Chile |
(1,443 | ) | | |||||
Other |
(1,211 | ) | (387 | ) | ||||
Net cash used for financing activities |
(48,838 | ) | (78,818 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(7,896 | ) | 3,758 | |||||
Increase (decrease) in cash and cash equivalents |
46,508 | (7,390 | ) | |||||
Cash and cash equivalents: |
||||||||
Beginning of period |
464,765 | 437,737 | ||||||
End of period |
$ | 511,273 | $ | 430,347 | ||||
Supplemental
information (see Note 16)
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except share and per share data
1. The Company and Basis of Presentation
Cinemark USA, Inc. and subsidiaries (the Company) is a leader in the motion picture
exhibition industry, with theatres in the United States (U.S.), 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 nine months
ended September 30, 2011.
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, 2010, included in the Annual Report on Form 10-K filed March 12, 2011 by the Company under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Operating results for the nine
months ended September 30, 2011 are not necessarily indicative of the results to be achieved for
the full year.
2. New Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASU No. 2011-04). ASU No.
2011-04 provides guidance which is expected to result in common fair value measurement and
disclosure requirements between U.S. GAAP and IFRS. It changes the wording used to describe many of
the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair
value measurements. It is not intended for this update to result in a change in the application of
the requirements in Topic 820. The amendments in ASU No. 2011-04 are to be applied prospectively.
ASU No. 2011-04 is effective for public companies for interim and annual periods beginning after
December 15, 2011. Early application is not permitted. This update is not expected to have a
material impact on the Companys condensed consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation
of Comprehensive Income (ASU No. 2011-05). In ASU No. 2011-05, an entity has the option to
present the total of comprehensive income, the components of net income, and the components of
other comprehensive income either in a single continuous statement of comprehensive income or in
two separate but consecutive statements. In both choices, an entity is required to present each
component of net income along with total net income, each component of other comprehensive income
along with a total for other comprehensive income, and a total amount for comprehensive income. The
amendments in ASU No. 2011-05 do not change the items that must be reported in other comprehensive
income or when an item of other comprehensive income must be reclassified to net income. They also
do not change the presentation of related tax effects, before related tax effects, or the portrayal
or calculation of earnings per share. The amendments in ASU No. 2011-05 should be applied
retrospectively. The amendment is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the
amendments is already permitted. The amendments do not require any transition disclosures. The
Company is evaluating the requirements of ASU No. 2011-05 and has not yet determined whether
components of comprehensive income, the components of net income, and the components of other
comprehensive income will be presented in a single continuous statement of comprehensive income or
in two separate but consecutive statements.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles Goodwill and Other (Topic
350) (ASU No. 2011-08). In ASU No. 2011-08, an entity is permitted to make a qualitative
assessment of whether it is more likely than not that a reporting units fair value is less than
its carrying amount before applying the two-step goodwill
7
Table of Contents
CINEMARK USA, 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
impairment test. If an entity concludes that it is not more likely than not that the fair
value of a reporting unit is less than its carrying amount, it would not be required to perform the
two-step impairment test for that reporting unit. The ASUs objective is to simplify how an entity
tests goodwill for impairment. The amendments in ASU No. 2011-08 are effective for annual and
interim goodwill and impairment tests performed for fiscal years beginning after December 15, 2011.
Early adoption is permitted, including for annual and interim goodwill impairment tests performed
as of a date before September 15, 2011, if an entitys financial statements for the most recent
annual or interim period have not yet been issued. The Company is evaluating the requirements of
ASU No. 2011-08 and has not yet determined whether a revised approach to evaluation of goodwill
impairment will be used in future assessments. The Company does not expect the adoption of ASU No.
2011-08 to have a material impact on its condensed consolidated financial statements.
3. Long-Term Debt Activity
Amendment and Extension of the Senior Secured Credit Facility
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 $924,375 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 then remaining term loan debt of $159,225 that was not extended continued to have a
maturity date of October 2013.
Issuance of Cinemark USA, Inc. 7.375% Senior Subordinated Notes Due 2021
On June 3, 2011, Cinemark USA, Inc. issued $200,000 aggregate principal amount of 7.375%
senior subordinated notes due 2021, at par value. The proceeds, after payment of fees, were
primarily used to fund the prepayment of the remaining $157,235 of the Companys unextended portion
of term loan debt under its senior secured credit facility. Interest on the senior subordinated
notes is payable on June 15 and December 15 of each year beginning on December 15, 2011. The senior
subordinated notes mature on June 15, 2021. The Company incurred debt issue costs of approximately
$4,500 in connection with the issuance.
The senior subordinated notes are fully and unconditionally guaranteed on a joint and several
senior subordinated unsecured basis by certain of the Companys subsidiaries that guarantee, assume
or become liable with respect to any of the Companys or a guarantors other debt. The senior
subordinated notes and the guarantees are senior subordinated unsecured obligations and rank
equally in right of payment with all of the Companys and a guarantors future senior subordinated
indebtedness; are subordinate in right of payment to all of the Companys and a guarantors
existing and future senior indebtedness, whether secured or unsecured, including the Companys
obligations under its senior secured credit facility and its 8.625% senior notes; and structurally
subordinate to all existing and future indebtedness and other liabilities of the Companys
non-guarantor subsidiaries.
The indenture to the senior subordinated notes contains covenants that limit, among other
things, the ability of Cinemark USA, Inc. and certain of its subsidiaries to (1) make investments
or other restricted payments, including paying dividends, making other distributions or
repurchasing subordinated debt or equity, (2) incur additional indebtedness and issue preferred
stock, (3) enter into transactions with affiliates, (4) enter new lines of business, (5) merge or
consolidate with, or sell all or substantially all of its assets to, another person and (6) create
liens. Upon a change of control, as defined in the Indenture, the Company would be required to make
an offer to repurchase the senior subordinated notes at a price equal to 101% of the aggregate
principal amount outstanding plus accrued and unpaid interest, if any, through the date of
repurchase. The indenture governing the senior subordinated 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.
Prior to June 15, 2016, Cinemark USA, Inc. may redeem all or any part of the senior
subordinated notes at its option at 100% of the principal amount plus a make-whole premium plus
accrued and unpaid interest on the senior subordinated notes to the date of redemption. After June
15, 2016, Cinemark USA, Inc. may redeem the senior subordinated notes in whole or in part at
redemption prices specified in the indenture. In addition, prior to June 15, 2014, Cinemark USA,
Inc. may redeem up to 35% of the aggregate principal amount of the senior subordinated notes from
the net proceeds of certain equity offerings at the redemption price set forth in the indenture.
8
Table of Contents
CINEMARK USA, 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
Cinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the
Securities and Exchange Commission (the Commission) on July 27, 2011 pursuant to which Cinemark
USA, Inc. offered to exchange the senior subordinated notes for substantially similar registered
senior subordinated notes. The registration statement became effective August 4, 2011, and
approximately $199,500 of the notes were exchanged on September 7, 2011. The registered senior
subordinated notes, issued in the exchange, do not have transfer restrictions. Approximately $500
of the notes were not exchanged as of September 30, 2011.
Prepayment of Term Loan Debt
On June 3, 2011, the Company prepaid the remaining $157,235 of its unextended term loan debt
under its senior secured credit facility utilizing a portion of the proceeds from the issuance of
the Cinemark USA, Inc. 7.375% senior subordinated notes discussed above. There were no prepayment
penalties incurred upon the prepayment of the term loan debt. Subsequent to the prepayment, the
quarterly payments due on the term loan will be approximately $2,311 per quarter through March 2016
with the remaining principal amount of approximately $866,602 due April 30, 2016. The prepayment
did not impact the interest rate applicable to the remaining portion of the term loan debt nor did
it impact the maturity of the Companys revolving credit line.
As a result of the prepayment, the Company wrote-off approximately $2,183 in unamortized debt
issue costs related to the unextended portion of term loan debt that was prepaid. In addition, the
Company determined that a portion of the quarterly interest payments hedged by two of its current
interest rate swap agreements under cash flow hedges and the quarterly interest payments related to
its previously terminated interest rate swap agreement were probable not to occur and therefore
reclassified approximately $2,760 of its accumulated other comprehensive loss related to these cash
flow hedges to earnings, as a component of loss on early retirement of debt. The Company also
recorded fees of $2 to loss on early retirement of debt during the nine months ended September 30,
2011.
As of September 30, 2011, there was approximately $908,199 outstanding under the term loan and
no borrowings outstanding under the revolving credit line.
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 $1,574,437 and $1,532,441 as of
September 30, 2011 and December 31, 2010, respectively. The fair value of the Companys long-term
debt was $1,577,994 and $1,581,963 as of September 30, 2011 and December 31, 2010, respectively.
4. Purchase of Noncontrolling Interests Share of Cinemark Chile
During May 2011, the Company purchased its Chilean partners 2.6% share of Cinemark Chile S.A.
(Cinemark Chile) for approximately $1,443 in cash. The increase in the Companys ownership
interest in its Chilean subsidiary was accounted for as an equity transaction in accordance with
ASC Topic 810-10-45-23. The Company recorded a decrease in additional paid-in-capital of
approximately $1,402, which represented the difference between the cash paid and the book value of
the Chilean partners noncontrolling interest account, or approximately $917, plus the Chilean
partners share of accumulated other comprehensive loss of approximately $485. As a result of this
transaction, the Company owns 100% of the shares in Cinemark Chile.
5. Acquisition of Argentina Theatres
On
August 25, 2011, the Company acquired ten theatres with 95 screens from Hoyts General
Cinema South America, Inc. in a stock purchase for approximately $66,958 in cash. The acquisition
resulted in an expansion of the Companys international theatre base. The Company incurred
approximately $200 in transaction costs, which are reflected in general and administrative expenses
on the condensed consolidated statements of income for the three and nine months ended September 30,
2011.
The transaction was accounted for by applying the acquisition method. The following table
represents the fair value of the identifiable assets acquired and
liabilities assumed as of the acquisition date:
9
Table of Contents
CINEMARK USA, 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
Theatre properties and equipment |
$ | 19,932 | ||
Tradename |
10,032 | |||
Favorable leases |
7,745 | |||
Other intangible assets |
908 | |||
Goodwill |
43,072 | |||
Long-term debt |
(5,993 | ) | ||
Deferred tax liability |
(7,189 | ) | ||
Other liabilities, net of other assets |
(1,549 | ) | ||
Total |
$ | 66,958 | ||
The amounts listed above are provisional and will be updated by the Company upon completion of
the valuation analyses necessary to properly allocate the purchase price. The acquisition is
subject to review by the Argentina Comisión Nacional de Defensa de la Competencia (CNDC).
6. Equity
Below
is a summary of changes in stockholders equity attributable to Cinemark USA, Inc.,
noncontrolling interests and total equity for the nine months ended September 30, 2011 and 2010:
Cinemark | ||||||||||||
USA, Inc. | ||||||||||||
Stockholders | Noncontrolling | Total | ||||||||||
Equity | Interests | Equity | ||||||||||
Balance at January 1, 2011 |
$ | 1,029,100 | $ | 11,605 | $ | 1,040,705 | ||||||
Purchase of noncontrolling interests share of Chile subsidiary |
(917 | ) | (526 | ) | (1,443 | ) | ||||||
Share based awards compensation expense |
6,641 | | 6,641 | |||||||||
Tax benefit related to stock option exercises and restricted stock vesting |
910 | | 910 | |||||||||
Dividends paid to parent |
(71,250 | ) | | (71,250 | ) | |||||||
Dividends paid to noncontrolling interests |
| (1,211 | ) | (1,211 | ) | |||||||
Write-off of accumulated other comprehensive loss related to cash flow hedges,
net of taxes of $723 |
2,037 | | 2,037 | |||||||||
Comprehensive income: |
||||||||||||
Net income |
113,254 | 1,685 | 114,939 | |||||||||
Fair value adjustments on interest
rate swap agreements designated as
hedges, net of taxes of $4,180 |
(7,565 | ) | | (7,565 | ) | |||||||
Amortization of accumulated other
comprehensive loss on terminated swap
agreement |
3,248 | | 3,248 | |||||||||
Fair value adjustments on
available-for-sale securities, net of
taxes of $7,485 |
(12,485 | ) | | (12,485 | ) | |||||||
Foreign currency translation adjustment |
(35,566 | ) | (173 | ) | (35,739 | ) | ||||||
Total comprehensive income |
60,886 | 1,512 | 62,398 | |||||||||
Balance at September 30, 2011 |
$ | 1,027,407 | $ | 11,380 | $ | 1,038,787 | ||||||
10
Table of Contents
CINEMARK USA, 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
Cinemark | ||||||||||||
USA, Inc. | ||||||||||||
Stockholders | Noncontrolling | Total | ||||||||||
Equity | Interests | Equity | ||||||||||
Balance at January 1, 2010 |
$ | 907,345 | $ | 14,796 | $ | 922,141 | ||||||
Colombia Share Exchange |
5,865 | (5,865 | ) | | ||||||||
Share based awards compensation expense |
4,622 | | 4,622 | |||||||||
Dividends paid to parent |
(54,600 | ) | | (54,600 | ) | |||||||
Tax benefit related to stock option exercises |
1,904 | | 1,904 | |||||||||
Dividends paid to noncontrolling interests |
| (387 | ) | (387 | ) | |||||||
Comprehensive income: |
||||||||||||
Net income |
109,017 | 3,246 | 112,263 | |||||||||
Fair value adjustments on interest rate swap
agreements, net of taxes of $137 |
(226 | ) | | (226 | ) | |||||||
Amortization of accumulated other comprehensive loss
on terminated swap agreement |
3,475 | | 3,475 | |||||||||
Fair value adjustments on available-for-sale securities |
1,356 | | 1,356 | |||||||||
Foreign currency translation adjustment |
13,694 | 208 | 13,902 | |||||||||
Total comprehensive income |
127,316 | 3,454 | 130,770 | |||||||||
Balance at September 30, 2010 |
$ | 992,452 | $ | 11,998 | $ | 1,004,450 | ||||||
7. Investment in National CineMedia
The Company has an investment in National CineMedia, LLC (NCM). NCM operates a digital
in-theatre network in the U.S. for providing cinema advertising and non-film events. As described
further in Note 4 to the Companys financial statements as included in its 2010 Annual Report on
Form 10-K, on February 13, 2007, National CineMedia, Inc. (NCM, Inc.), an entity that serves as
the sole manager of NCM, completed an IPO of its common stock. In connection with the NCM Inc.
initial public offering, the Company amended its operating agreement and the Exhibitor Services
Agreement with NCM. Following the NCM, Inc. IPO, the Company does not recognize undistributed
equity in the earnings on its original NCM membership units (referred to herein as the Companys
Tranche 1 Investment) until NCMs future net earnings, less distributions received, surpass the
amount of the excess distribution. The Company recognizes equity in earnings on its Tranche 1
Investment only to the extent it receives cash distributions from NCM. The Company believes that
the accounting model provided by ASC 323-10-35-22 for recognition of equity investee losses in
excess of an investors basis is analogous to the accounting for equity income subsequent to
recognizing an excess distribution.
Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc.
and the Company, AMC Entertainment Inc. and Regal Entertainment Group, collectively referred to as
its Founding Members, annual adjustments to the common membership units are made primarily based on
increases or decreases in the number of theatre screens operated and theatre attendance generated
by each Founding Member. To account for the receipt of additional common units under the Common
Unit Adjustment Agreement, the Company follows the guidance in ASC 323-10-35-29 (formerly EITF
02-18, Accounting for Subsequent Investments in an Investee after Suspension of Equity Loss
Recognition") by analogy, which also refers to AICPA Technical Practice Aid 2220.14, which
indicates that if a subsequent investment is made in an equity method investee that has experienced
significant losses, the investor must determine if the subsequent investment constitutes funding of
prior losses. The Company concluded that the construction or acquisition of new theatres that has
led to the common unit adjustments equates to making additional investments in NCM. The Company
evaluated the receipt of the additional common units in NCM and the assets exchanged for these
additional units and has determined that the right to use its incremental new screens would not be
considered funding of prior losses. The Company accounts for these additional common units
(referred to herein as its Tranche 2 Investment) as a separate investment than its Tranche 1
Investment. The common units received are recorded at fair value as an increase in the Companys
investment in NCM with an offset to deferred revenue. The deferred revenue is amortized over the
remaining term of the Exhibitor Services Agreement. The Tranche 2 Investment is accounted for
following the equity method. Therefore, undistributed equity earnings related to its Tranche 2
Investment are included as a component of earnings in equity in income (loss) of affiliates and
distributions received related to its Tranche 2 Investment are recorded as a reduction of its
investment basis. In the event that a common unit adjustment is determined to be a negative number,
the Founding Member can elect to either
transfer and surrender to NCM the number of common units equal to all or part of such Founding
Members common
11
Table of Contents
CINEMARK USA, 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
unit adjustment or to pay to NCM an amount equal to such Founding Members common unit
adjustment calculated in accordance with the Common Unit Adjustment Agreement. If the Company then
elects to surrender common units as part of a negative common unit adjustment, the Company would
record a reduction to deferred revenue at the then fair value of the common units surrendered and a
reduction of the Companys Tranche 2 investment at an amount equal to the weighted average cost for
Tranche 2 common units, with the difference between the two values recorded as a gain or loss on
sale of assets and other.
Below is a summary of activity with NCM included in the Companys condensed consolidated
financial statements:
Investment | Deferred | Distributions | Equity in | Other | Cash | |||||||||||||||||||
in NCM | Revenue | from NCM | Earnings | Revenue | Received | |||||||||||||||||||
Balance as of December 31, 2010 |
$ | 64,376 | $ | (230,573 | ) | |||||||||||||||||||
Receipt of common units due to annual
common unit adjustment |
9,302 | (9,302 | ) | $ | | $ | | $ | | $ | | |||||||||||||
Revenues earned under exhibitor
services agreement |
| | | | (4,305 | ) | 4,305 | |||||||||||||||||
Receipt of excess cash distributions |
(3,797 | ) | | (12,392 | ) | | | 16,189 | ||||||||||||||||
Receipt under tax receivable agreement |
(729 | ) | | (4,138 | ) | | | 4,867 | ||||||||||||||||
Equity in earnings |
4,486 | | | (4,486 | ) | | | |||||||||||||||||
Amortization of deferred revenue |
| 2,658 | | | (2,658 | ) | | |||||||||||||||||
Balance as of and for the period
ended September 30, 2011 |
$ | 73,638 | $ | (237,217 | ) | $ | (16,530 | ) | $ | (4,486 | ) | $ | (6,963 | ) | $ | 25,361 | ||||||||
During March 2011, 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 549,417 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 part of
its Tranche 2 Investment with a corresponding adjustment to deferred revenue of approximately
$9,302. The deferred revenue will be recognized under the units of revenue method over the
remaining term of the Companys Exhibitor Services Agreement with NCM, which is approximately 26
years. The common unit adjustment resulted in a change in the Companys ownership percentage in NCM
from approximately 15.3% to 15.8%.
As of September 30, 2011, the Company owned a total of 17,495,920 common units of NCM. During
the nine months ended September 30, 2011 and 2010, the Company recorded equity earnings of
approximately $4,486 and $3,615, respectively.
Pursuant to the terms of the Exhibitor Services Agreement, the Company recorded other
revenues, excluding the amortization of deferred revenue, of approximately $4,305 and $3,666 during
the nine months ended September 30, 2011 and 2010, 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 $8,305 and $7,806, respectively.
Below is summary unaudited financial information for NCM for the six months ended June 30,
2011 (financial information was not yet available for the nine months ended September 30, 2011).
Six Months | ||||
Ended | ||||
June 30, 2011 | ||||
Gross revenues |
$ | 184,785 | ||
Operating income |
$ | 65,159 | ||
Net earnings |
$ | 42,632 |
12
Table of Contents
CINEMARK USA, 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
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.
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 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. 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. The
contribution and sale of these digital projection systems resulted in an aggregate loss of
approximately $2,033, which is reflected in loss on sale of assets and other on the condensed
consolidated statement of income for the nine months ended September 30, 2010. During the nine
months ended September 30, 2011, the Company sold digital projection systems with a net book value
of approximately $3,777 to Kasima for approximately $2,739, resulting in a loss of approximately
$1,038, which is reflected in loss on sale of assets and other on the condensed consolidated
statement of income for the nine months ended September 30, 2011. As of September 30, 2011, the
Company had a 33% voting interest in DCIP and a 24.3% economic interest in DCIP.
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 nine months ended September 30, 2011
and 2010, the Company recorded equity losses of $1,927 and $8,644, respectively, relating to this
investment. Below is a summary of activity with DCIP for the nine months ended September 30, 2011:
Investment in | ||||
DCIP | ||||
Balance as of December 31, 2010 |
$ | 10,838 | ||
Cash contributions to DCIP |
1,260 | |||
Equity in loss |
(1,927 | ) | ||
Balance as of September 30, 2011 |
$ | 10,171 | ||
The Company continues to roll out digital projection systems to a majority of its first
run U.S. theatres. The digital projection systems are leased from Kasima under an operating lease
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 is also 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 September 30, 2011, the Company had 3,075 digital
projection systems being leased under the master equipment lease agreement with Kasima. The Company
recorded equipment lease expense of approximately $3,684 and $685 during the nine months ended
September 30, 2011 and 2010, respectively, which is included in utilities and other costs on the
condensed consolidated statements of income.
The digital projection systems leased from Kasima have replaced a majority of the Companys 35
millimeter projection systems in its U.S. theatres. Therefore, upon signing the agreements, the
Company began accelerating the depreciation of its 35 millimeter projection systems, based on the
estimated replacement timeframe. The Company recorded depreciation expense of approximately $10,604
and $5,981 on its domestic 35 millimeter projectors during the nine months ended September 30, 2011
and 2010, respectively. The Companys domestic 35 millimeter projection systems have been fully
depreciated as of September 30, 2011.
13
Table of Contents
CINEMARK USA, 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
9. Investment in Marketable Securities RealD
Under its license agreement with RealD, a publicly traded company from whom the Company
licenses its 3-D systems, the Company earned options to purchase shares of common stock upon
installation of a certain number of 3-D systems as outlined in the license agreement. During 2010,
the Company earned a total of 1,085,828 options to purchase shares of common stock in RealD. Upon
vesting in these options, the Company recorded a total investment in RealD of approximately
$18,909, which represented the estimated aggregate fair value of the options, with an offset to
deferred lease incentive liability.
During the nine months ended September 30, 2011, the Company vested in an additional 136,952
RealD options by reaching the final target level, as outlined in the license agreement. Upon
vesting in these additional options, the Company recorded an increase in its investment in RealD
and its deferred lease incentive liability of approximately $3,402, which represented the estimated
fair value of the RealD options. The fair value measurements were based upon RealDs closing stock
prices on the dates of vesting. These fair value measurements fall under Level 1 of the U.S. GAAP
fair value hierarchy as defined by ASC Topic 820-10-35. The deferred lease incentive liability,
which is reflected in other long-term liabilities on the condensed consolidated balance sheets, is
being amortized over the term of the license agreement, which is approximately seven and one-half
years.
During March 2011, the Company exercised all of its options to purchase shares of common stock
in RealD for $0.00667 per share. The Company accounts for its investment in RealD as a marketable
security. The Company has determined that its RealD shares are available-for-sale securities in
accordance with ASC Topic 320-10-35-1, therefore unrealized holding gains and losses are reported
as a component of accumulated other comprehensive income (loss) until realized.
As of September 30, 2011, the Company owned 1,222,780 shares in RealD, with an estimated fair
value of $11,433. The fair value of the RealD shares as of September 30, 2011 was determined based
upon the closing price of RealDs common stock on that date, which falls under Level 1 of the U.S.
GAAP fair value hierarchy as defined by ASC Topic 820-10-35. During the nine months ended September
30, 2011, the Company recorded an unrealized holding loss of approximately $19,970, before taxes,
as a component of accumulated other comprehensive income (loss) on the condensed consolidated
balance sheet.
10. Share Based Awards
Stock Options A summary of stock option activity and related information for Cinemark
Holdings, Inc. stock options that are held by the Companys employees for the nine months ended
September 30, 2011 is as follows:
Weighted Average | ||||||||||||||||
Number of | Weighted Average | Grant Date Fair | Aggregate Intrinsic | |||||||||||||
Options | Exercise Price | Value | Value | |||||||||||||
Outstanding at December 31, 2010 |
140,356 | $ | 7.63 | $ | 3.51 | |||||||||||
Exercised |
(58,190 | ) | $ | 7.63 | $ | 3.51 | ||||||||||
Outstanding at September 30, 2011 |
82,166 | $ | 7.63 | $ | 3.51 | $ | 924 | |||||||||
Options exercisable at September 30, 2011 |
82,166 | $ | 7.63 | $ | 3.51 | $ | 924 | |||||||||
The total intrinsic value of options exercised during the nine months ended September 30,
2011 was $699. The Company recognized a tax benefit of approximately $238 during the nine months
ended September 30, 2011 related to these option exercises.
As of September 30, 2011, there was no remaining unrecognized compensation expense related to
outstanding stock options as all outstanding options fully vested on April 2, 2009. Options
outstanding at September 30, 2011 have an average remaining contractual life of approximately three
years.
Restricted Stock - During the nine months ended September 30, 2011, Cinemark Holdings, Inc.
granted 424,436 shares of restricted stock to directors of Cinemark Holdings, Inc. and employees of
the Company. The fair values of
14
Table of Contents
CINEMARK USA, 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 restricted stock granted was determined based on the market values of Cinemark Holdings,
Inc.s common stock on the dates of grant, which ranged from $19.35 to $20.71 per share. The
Company assumed forfeiture rates ranging from 0% to 5% for the restricted stock awards. The
restricted stock granted to directors vests over one year based on continued service. The
restricted stock granted to employees vests over four years based on continued service. 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.
Below is a summary of restricted stock activity for the nine months ended September 30, 2011:
Shares of | Weighted Average | |||||||
Restricted | Grant Date | |||||||
Stock | Fair Value | |||||||
Outstanding at December 31, 2010 |
1,254,691 | $ | 14.60 | |||||
Granted |
424,436 | $ | 19.45 | |||||
Forfeited |
(853 | ) | $ | 12.89 | ||||
Vested |
(288,204 | ) | $ | 10.84 | ||||
Canceled |
(4,613 | ) | $ | 18.35 | ||||
Outstanding at September 30, 2011 |
1,385,457 | $ | 16.85 | |||||
Unvested restricted stock at September 30, 2011 |
1,385,457 | $ | 16.52 | |||||
The Company recorded compensation expense of $4,341 and $2,951 and Cinemark Holdings,
Inc. recorded an additional $491 and $556, respectively, related to restricted stock awards during
the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011, the
remaining unrecognized compensation expense related to restricted stock awards was $15,447 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 nine months ended September 30, 2011 was $5,658. The
Company recognized a tax benefit of approximately $2,188 during the nine months ended September 30,
2011 related to these vested shares.
Restricted Stock Units During the nine months ended September 30, 2011, Cinemark Holdings,
Inc. granted restricted stock units representing 153,727 hypothetical shares of common stock to
employees of the Company. 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, 2013 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, 2015, 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 vest.
Below is a table summarizing the potential number of shares that could vest under restricted
stock unit awards granted during the nine months ended September 30, 2011 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% |
51,239 | $ | 991 | |||||
at IRR of at least 10.5% |
102,488 | $ | 1,983 | |||||
at IRR of at least 12.5% |
153,727 | $ | 2,975 |
15
Table of Contents
CINEMARK USA, 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
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 fair value of the restricted stock unit awards was determined based on the
market value of Cinemark Holdings, Inc.s common stock on the date of grant, which was $19.35 per
share. 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.
No restricted stock unit awards have vested. There were no forfeitures of restricted stock
unit awards during the nine months ended September 30, 2011. The Company recorded compensation
expense of $2,300 and $1,672 related to restricted stock unit awards during the nine months ended
September 30, 2011 and 2010, respectively. As of September 30, 2011, the remaining unrecognized
compensation expense related to the outstanding restricted stock unit awards was $6,014. The
weighted average period over which this remaining compensation expense will be recognized is
approximately two years. As of September 30, 2011, the Company had restricted stock units
outstanding that represented a total of 1,037,770 hypothetical shares of common stock, net of
actual cumulative forfeitures of 19,918 units, assuming the maximum IRR of at least 12.5% is
achieved for all of the grants.
11. Interest Rate Swap Agreements
The Company is currently a party to five interest rate swap agreements that qualify for cash
flow hedge accounting. No premium or discount was incurred upon the Company entering into any of
its interest rate swap agreements because the pay rates and receive rates on the interest rate swap
agreements represented prevailing rates for each counterparty at the time each of the interest rate
swap agreements was consummated. The fair values of the interest rate swaps are recorded on the
Companys 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
income (loss) and the ineffective portion reported in earnings.
The valuation 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. Therefore, the Companys measurements use significant unobservable inputs, which fall
in Level 3 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35. There were no changes
in valuation techniques during the period and no transfers in or out
of Level 3. See Note 14 for a
summary of unrealized gains or losses recorded in accumulated other comprehensive income (loss) and
earnings.
Below is a summary of the Companys current interest rate swap agreements designated as hedge
agreements as of September 30, 2011:
Estimated | ||||||||||||||||||||||||||
Amount Designated | Current | Long-Term | Total Fair Value at | |||||||||||||||||||||||
as a Hedge | Effective Date | Pay Rate | Receive Rate | Expiration Date | Liability (1) | Liability (2) | September 30, 2011 | |||||||||||||||||||
$ | 106,632 | (3) | August 2007 | 4.9220 | % | 3-Month LIBOR |
August 2012 |
$ | 4,864 | $ | | $ | 4,864 | |||||||||||||
$ | 149,285 | (4) | November 2008 | 3.6300 | % | 1-Month LIBOR |
(5) |
2,792 | 401 | 3,193 | ||||||||||||||||
$ | 175,000 | December 2010 | 1.4000 | % | 1-Month LIBOR |
September 2015 |
1,713 | 1,798 | 3,511 | |||||||||||||||||
$ | 175,000 | December 2010 | 1.3975 | % | 1-Month LIBOR |
September 2015 |
1,709 | 1,865 | 3,574 | |||||||||||||||||
$ | 100,000 | November 2011 | 1.7150 | % | 1-Month LIBOR |
April 2016 |
1,248 | 1,616 | 2,864 | |||||||||||||||||
$ | 705,917 | $ | 12,326 | $ | 5,680 | $ | 18,006 | |||||||||||||||||||
(1) | Included in accounts payable and accrued expenses on the condensed consolidated balance sheet as of September 30, 2011. | |
(2) | Included in other long-term liabilities on the condensed consolidated balance sheet as of September 30, 2011. | |
(3) | An additional $18,368 of this original $125,000 swap is no longer designated as a hedge as a result of the prepayment of the unextended portion of the Companys term loan debt. | |
(4) | An additional $25,715 of this original $175,000 swap is no longer designated as a hedge as a result of the prepayment of the unextended portion of the Companys term loan debt. Approximately $14,690 of this additional amount expires November 2011 and $11,025 expires November 2012. | |
(5) | $85,310 of this swap expires November 2011 and $63,975 expires November 2012. |
16
Table of Contents
CINEMARK USA, 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
During June 2011, the Company prepaid the remaining unextended portion of its term loan debt
under its senior secured credit facility (see Note 3). As a result, the Company determined that a
portion of the quarterly interest payments hedged by two of its current interest rate swap
agreements and the quarterly interest payments related to its previously terminated interest rate
swap agreement were probable not to occur and therefore reclassified approximately $2,760 of its
accumulated other comprehensive loss related to these cash flow hedges to earnings, as a component
of loss on early retirement of debt, during the nine months ended September 30, 2011.
The Company amortized approximately $3,248 and $3,475 to interest expense during the nine
months ended September 30, 2011 and 2010, respectively, related to a previously terminated interest
rate swap agreement. The Company will amortize approximately $3,953 to interest expense for this
terminated interest rate swap agreement over the next twelve months.
See Note 14 for additional
information about the Companys fair value measurements related to its interest rate swap
agreements.
12. Goodwill and Other Intangible Assets
The Companys goodwill was as follows:
U.S. | International | |||||||||||
Operating | Operating | |||||||||||
Segment | Segment | Total | ||||||||||
Balance at December 31, 2010 (1) |
$ | 948,026 | $ | 174,945 | $ | 1,122,971 | ||||||
Acquisition of ten theatres in Argentina (see Note 5) |
| 43,072 | 43,072 | |||||||||
Foreign currency translation adjustments |
| (11,818 | ) | (11,818 | ) | |||||||
Balance at September 30, 2011 (1) |
$ | 948,026 | $ | 206,199 | $ | 1,154,225 | ||||||
(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 2010. No events or changes in
circumstances occurred during the nine months ended September 30, 2011 that indicated that the
carrying value of goodwill might exceed its estimated fair value.
17
Table of Contents
CINEMARK USA, 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:
Foreign | ||||||||||||||||||||
Currency | ||||||||||||||||||||
Balance at | Translation | Balance at | ||||||||||||||||||
December 31, | Adjustments | September 30, | ||||||||||||||||||
2010 | Acquisitions (3) | Amortization | and Other (1) | 2011 | ||||||||||||||||
Intangible assets with finite lives: |
||||||||||||||||||||
Gross carrying amount (2) |
$ | 64,319 | $ | 18,685 | $ | | $ | (3,746 | ) | $ | 79,258 | |||||||||
Accumulated amortization |
(46,185 | ) | | (3,132 | ) | 2,791 | (46,526 | ) | ||||||||||||
Total net intangible assets with finite
lives |
$ | 18,134 | $ | 18,685 | $ | (3,132 | ) | $ | (955 | ) | $ | 32,732 | ||||||||
Intangible assets with indefinite lives: |
||||||||||||||||||||
Tradename |
311,070 | | | (968 | ) | 310,102 | ||||||||||||||
Total intangible assets net |
$ | 329,204 | $ | 18,685 | $ | (3,132 | ) | $ | (1,923 | ) | $ | 342,834 | ||||||||
(1) | During the nine months ended September 30, 2011, the Company wrote off an intangible asset with a carrying value of approximately $549 associated with a screen advertising contract in Brazil that was terminated. | |
(2) | Consists of vendor contracts, favorable leases and other intangible assets, including amortizing tradenames. | |
(3) | Consists of tradename, favorable leases and other intangible assets (see Note 5). |
Estimated aggregate future amortization expense for intangible assets is as follows:
For the three months ended December 31, 2011 |
$ | 1,445 | ||
For the twelve months ended December 31, 2012 |
5,340 | |||
For the twelve months ended December 31, 2013 |
5,063 | |||
For the twelve months ended December 31, 2014 |
4,528 | |||
For the twelve months ended December 31, 2015 |
4,181 | |||
Thereafter |
12,175 | |||
Total |
$ | 32,732 | ||
13. 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 asset carrying
values, the age of a recently built theatre, competitive theatres in the marketplace, 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 approximately
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. 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 nine months ended September 30, 2010 and 2011. As of September 30, 2011, the
estimated aggregate fair value of the long-lived assets impaired during the three months ended
September 30, 2011 was approximately $151.
18
Table of Contents
CINEMARK USA, 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 each of the periods presented are
specific to theatres that were directly and individually impacted by increased competition, adverse
changes in market demographics or adverse changes in the development or the conditions of the areas
surrounding the theatre.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
United States theatre properties |
$ | 303 | $ | 424 | $ | 1,367 | $ | 3,265 | ||||||||
International theatre properties |
689 | 598 | 2,234 | 1,661 | ||||||||||||
Subtotal |
$ | 992 | $ | 1,022 | $ | 3,601 | $ | 4,926 | ||||||||
Intangible assets |
| | | 1,131 | ||||||||||||
Impairment of long-lived assets |
$ | 992 | $ | 1,022 | $ | 3,601 | $ | 6,057 | ||||||||
14. Fair Value Measurements
The Company determines fair value measurements in accordance with FASB ASC Topic 820, which
establishes a fair value hierarchy under which an asset or liability is categorized based on the
lowest level of input significant to its fair value measurement. The levels of input defined by
FASB ASC Topic 820 are as follows:
Level 1 quoted market prices in active markets for identical assets or liabilities that are
accessible at the measurement date;
Level 2 other than quoted market prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly; and
Level 3 unobservable and should be used to measure fair value to the extent that observable
inputs are not available.
Below is a summary of assets and liabilities measured at fair value on a recurring basis by
the Company under FASB ASC Topic 820 as of September 30, 2011:
Carrying | Fair Value | |||||||||||||||
Description | Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Interest rate swap liabilities current (see Note 11) |
$ | (12,326 | ) | $ | | $ | | $ | (12,326 | ) | ||||||
Interest rate swap liabilities long term (see Note 11) |
$ | (5,680 | ) | $ | | $ | | $ | (5,680 | ) | ||||||
Investment in RealD (see Note 9) |
$ | 11,433 | $ | 11,433 | $ | | $ | |
Below is a summary of assets and liabilities measured at fair value on a recurring basis
by the Company under FASB ASC Topic 820 as of December 31, 2010:
Carrying | Fair Value | |||||||||||||||
Description | Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Interest rate swap liabilities current (see Note 11) |
$ | (2,928 | ) | $ | | $ | | $ | (2,928 | ) | ||||||
Interest rate swap liabilities long term (see Note 11) |
$ | (13,042 | ) | $ | | $ | | $ | (13,042 | ) | ||||||
Interest rate swap assets long term (see Note 11) |
$ | 8,955 | $ | | $ | | $ | 8,955 | ||||||||
Investment in RealD (see Note 9) |
$ | 27,993 | $ | | $ | 27,993 | $ | |
19
Table of Contents
CINEMARK USA, 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 reconciliation of the beginning and ending balance for assets and liabilities
measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Liabilities | Assets | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Beginning balances January 1 |
$ | (15,970 | ) | $ | (18,524 | ) | $ | 8,955 | $ | | ||||||
Total loss included in
accumulated other
comprehensive income (loss) |
(2,790 | ) | (363 | ) | (8,955 | ) | | |||||||||
Total gain included in earnings |
754 | | | | ||||||||||||
Ending balances September 30 |
$ | (18,006 | ) | $ | (18,887 | ) | $ | | $ | | ||||||
There were no changes in valuation techniques during the period. The fair value
measurement for the Companys investment in RealD transferred from Level 2 to Level 1 during the
nine months ended September 30, 2011. Previous fair value estimates for the investment were based
on RealDs stock price, discounted to reflect the impact of a lock-up period to which the Company
was subject. The lock-up period expired during January 2011; therefore, the fair value estimates
for the investment subsequent to January 2011 were based on RealDs stock price with no
adjustments. There were no transfers in or out of Level 3 during the nine months ended September
30, 2011.
15. Foreign Currency Translation
The accumulated other comprehensive income (loss) account in stockholders equity of $28,181
and $(21,665) at December 31, 2010 and September 30, 2011, respectively, includes the cumulative
foreign currency adjustments of $34,248 and $(833), 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 and the change in fair value of the Companys
available-for-sale securities.
In 2010 and 2011, 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 income (loss).
On September 30, 2011, the exchange rate for the Brazilian real was 1.83 reais to the U.S.
dollar (the exchange rate was 1.67 reais to the U.S. dollar at December 31, 2010). As a result, the
effect of translating the September 30, 2011 Brazilian financial statements into U.S. dollars is
reflected as a foreign currency translation adjustment to the accumulated other comprehensive
income (loss) account as a decrease in stockholders equity of $23,144. At September 30, 2011, the
total assets of the Companys Brazilian subsidiaries were U.S. $316,880.
On September 30, 2011, the exchange rate for the Mexican peso was 13.55 pesos to the U.S.
dollar (the exchange rate was 12.39 pesos to the U.S. dollar at December 31, 2010). As a result,
the effect of translating the September 30, 2011 Mexican financial statements into U.S. dollars is
reflected as a foreign currency translation adjustment to the accumulated other comprehensive
income (loss) account as a decrease in stockholders equity of $7,722. At September 30, 2011, the
total assets of the Companys Mexican subsidiaries were U.S. $128,395.
On September 30, 2011, the exchange rate for the Chilean peso was 514.40 pesos to the U.S.
dollar (the exchange rate was 473.20 pesos to the U.S. dollar at December 31, 2010). As a result,
the effect of translating the September 30, 2011 Chilean financial statements into U.S. dollars is
reflected as a foreign currency translation adjustment to the accumulated other comprehensive
income (loss) account as a decrease in stockholders equity of $2,913. At September 30, 2011, the
total assets of the Companys Chilean subsidiaries were U.S. $39,287.
The effect of translating the September 30, 2011 financial statements of the Companys other
international subsidiaries, with local currencies other than the U.S. dollar, is reflected as a
foreign currency translation adjustment to the accumulated other comprehensive income (loss)
account as a decrease in stockholders equity of $1,787.
During May 2011, the Companys ownership in its Chilean subsidiary increased from 97.4% to
100% as a result of the Companys purchase of the noncontrolling interests shares of Cinemark
Chile. As part of this transaction, the Company recorded the amount of accumulated other
comprehensive loss previously allocated to the noncontrolling
20
Table of Contents
CINEMARK USA, 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
interest of $485, related to the translation of the Chilean financial statements into U.S.
dollars, as an increase to accumulated other comprehensive income (loss) with an offsetting
decrease to additional paid-in-capital. See Note 4.
16. Supplemental Cash Flow Information
The following is provided as supplemental information to the condensed consolidated statements
of cash flows:
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cash paid for interest |
$ | 69,273 | $ | 66,857 | ||||
Cash paid for income taxes, net of refunds received |
$ | 15,902 | $ | 70,762 | ||||
Noncash investing and financing activities: |
||||||||
Change in accounts payable and accrued expenses for the acquisition of theatre
properties and equipment (1) |
$ | 1,138 | $ | 1,748 | ||||
Theatre properties acquired under capital lease |
$ | 535 | $ | 2,191 | ||||
Change in fair market values of interest rate swap agreements, net of taxes |
$ | (7,565 | ) | $ | (226 | ) | ||
Investment in NCM receipt of common units (see Note 7) |
$ | 9,302 | $ | 30,683 | ||||
Investment in NCM change of interest gain |
$ | | $ | 271 | ||||
Equipment contributed to DCIP (see Note 8) |
$ | | $ | 18,090 | ||||
Investment in RealD (see Note 9) |
$ | 3,402 | $ | 14,638 | ||||
Change in fair market value of available-for-sale securities, net of taxes (see Note 9) |
$ | (12,485 | ) | $ | 1,356 | |||
Capital contribution from Cinemark Holdings, Inc. as a result of Colombia Share
Exchange |
$ | | $ | 6,951 |
(1) | Additions to theatre properties and equipment included in accounts payable as of December 31, 2010 and September 30, 2011 were $11,162 and $12,300, respectively. |
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 (note that the Companys only
Canadian theatre was sold during November 2010.) 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.
Below is a breakdown of selected financial information by reportable operating segment:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues |
||||||||||||||||
U.S. |
$ | 441,334 | $ | 400,277 | $ | 1,216,679 | $ | 1,199,856 | ||||||||
International |
201,637 | 161,492 | 534,828 | 420,404 | ||||||||||||
Eliminations |
(2,958 | ) | (1,534 | ) | (7,765 | ) | (4,025 | ) | ||||||||
Total revenues |
$ | 640,013 | $ | 560,235 | $ | 1,743,742 | $ | 1,616,235 | ||||||||
Adjusted EBITDA |
||||||||||||||||
U.S. |
$ | 110,591 | $ | 88,033 | $ | 290,136 | $ | 274,629 | ||||||||
International |
43,988 | 37,299 | 117,679 | 98,243 | ||||||||||||
Total Adjusted EBITDA |
$ | 154,579 | $ | 125,332 | $ | 407,815 | $ | 372,872 | ||||||||
Capital expenditures |
||||||||||||||||
U.S. |
$ | 17,871 | $ | 11,564 | $ | 57,316 | $ | 47,571 | ||||||||
International |
23,010 | 19,733 | 68,867 | 40,685 | ||||||||||||
Total capital expenditures |
$ | 40,881 | $ | 31,297 | $ | 126,183 | $ | 88,256 | ||||||||
21
Table of Contents
CINEMARK USA, 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 following table sets forth a reconciliation of net income to Adjusted EBITDA:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income |
$ | 47,949 | $ | 34,154 | $ | 114,939 | $ | 112,263 | ||||||||
Add (deduct): |
||||||||||||||||
Income taxes |
29,517 | 16,037 | 62,222 | 46,462 | ||||||||||||
Interest expense (1) |
32,249 | 28,938 | 91,316 | 83,553 | ||||||||||||
Loss on early retirement of debt |
| | 4,945 | | ||||||||||||
Other income (2) |
(2,816 | ) | (647 | ) | (8,289 | ) | (4 | ) | ||||||||
Depreciation and amortization(3) |
40,542 | 34,984 | 119,579 | 103,990 | ||||||||||||
Impairment of long-lived assets |
992 | 1,022 | 3,601 | 6,057 | ||||||||||||
Loss on sale of assets and other |
1,809 | 7,548 | 7,975 | 11,906 | ||||||||||||
Deferred lease expenses |
1,260 | 1,079 | 2,910 | 2,776 | ||||||||||||
Amortization of long-term prepaid rents |
692 | 468 | 1,976 | 1,247 | ||||||||||||
Share based awards compensation expense |
2,385 | 1,749 | 6,641 | 4,622 | ||||||||||||
Adjusted EBITDA |
$ | 154,579 | $ | 125,332 | $ | 407,815 | $ | 372,872 | ||||||||
(1) | Includes amortization of debt issue costs. | |
(2) | Includes interest income, foreign currency exchange gain (loss) and equity in income (loss) of affiliates and excludes distributions from NCM. Distributions from NCM are reported entirely within the U.S. operating segment. | |
(3) | Includes amortization of favorable/unfavorable leases. |
Financial Information About Geographic Areas
The Company has operations in the U.S., 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Revenues | 2011 | 2010 | 2011 | 2010 | ||||||||||||
U.S. |
$ | 441,334 | $ | 400,277 | $ | 1,216,679 | $ | 1,199,856 | ||||||||
Brazil |
100,605 | 87,339 | 279,048 | 226,556 | ||||||||||||
Mexico |
21,649 | 20,213 | 59,141 | 55,310 | ||||||||||||
Other foreign countries |
79,383 | 53,940 | 196,639 | 138,538 | ||||||||||||
Eliminations |
(2,958 | ) | (1,534 | ) | (7,765 | ) | (4,025 | ) | ||||||||
Total |
$ | 640,013 | $ | 560,235 | $ | 1,743,742 | $ | 1,616,235 | ||||||||
September 30, | December 31, | |||||||
Theatre Properties and Equipment-net | 2011 | 2010 | ||||||
U.S. |
$ | 935,039 | $ | 972,358 | ||||
Brazil |
131,181 | 129,361 | ||||||
Mexico |
41,574 | 43,127 | ||||||
Other foreign countries |
100,960 | 70,600 | ||||||
Total |
$ | 1,208,754 | $ | 1,215,446 | ||||
18. Related Party Transactions
Prior to March 2010, 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, Cinemark
Holdings, Inc.s Chairman of the Board, who directly and indirectly owns approximately 10% of
Cinemark Holdings, Inc.s issued and outstanding shares of common stock. The Company closed this
theatre during March 2010. The Company recorded $30 of facility lease and other operating expenses
payable to Plitt Plaza joint venture during the nine months ended September 30, 2010.
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
22
Table of Contents
CINEMARK USA, 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
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 $91 and $82 of management fee revenues during the nine months ended
September 30, 2011 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 20 theatres and one parking facility from Syufy Enterprises, LP (Syufy)
or affiliates of Syufy. Raymond Syufy is one of Cinemark Holdings, Inc.s directors and is an
officer of the general partner of Syufy. Of these 21 leases, 17 have fixed minimum annual rent in
an aggregate amount of approximately $21,044. 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 nine months ended September 30, 2011 and 2010, the Company paid approximately $1,041
and $1,046, respectively, in percentage rent for these four leases.
The Company has paid certain fees and expenses on behalf of its parent, Cinemark Holdings,
Inc. and Cinemark Holdings, Inc. has paid income taxes on behalf of the Company. The net receivable
from Cinemark Holdings, Inc. as of September 30, 2011 and
December 31, 2010 was $7,790 and $6,728,
respectively.
19. Income Taxes
During the nine months ended September 30, 2011, the Company had a reduction in its
liabilities for uncertain tax positions and a reduction in its income tax expense of approximately
$3,637 due to settlements and closures of various tax years. In addition, the Company reclassified
a portion of its deferred tax liability to liability for uncertain tax positions due to
the reassessment of a prior period tax position. During the nine months ended September 30, 2010
the Company had a reduction in its liabilities for uncertain tax positions of approximately $14,230
due to settlements and closures of various tax years. These settlements and closures also resulted
in a reduction in income tax expense of approximately $8,655 for the nine months ended September
30, 2010.
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, patent claims 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. Condensed Consolidating Financial Information of Subsidiary Guarantors
As of September 30, 2011, the Company had outstanding $470,000 aggregate principal amount of
8.625% senior notes due 2019, or the Senior Notes, and $200,000 aggregate principal amount of
7.375% senior subordinated notes due 2021, or the Senior Subordinated Notes. These Senior Notes and
Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and several senior
unsecured basis by the following subsidiaries of Cinemark USA, Inc.:
Cinemark, L.L.C., Sunnymead Cinema Corp., Cinemark Properties, Inc., Greeley Holdings, Inc.,
Trans Texas Cinema, Inc., Cinemark Mexico (USA), Inc., Brasil Holdings, LLC, Cinemark Leasing
Company, Cinemark Partners I, Inc., Multiplex Properties, Inc., Multiplex Services, Inc., CNMK
Investments, Inc., CNMK Texas Properties, LLC., Cinemark Concessions LLC, Laredo Theatres, Ltd,
Century Theatres, Inc., Marin Theatre Management, LLC, Century Theatres NG, LLC, Cinearts LLC,
Cinearts Sacramento, LLC, Corte Madera Theatres, LLC, Novato Theatres, LLC, San Rafael Theatres,
LLC, Northbay Theatres, LLC, Century Theatres Summit Sierra, LLC and Century Theatres Seattle, LLC.
23
Table of Contents
CINEMARK USA, 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 following supplemental condensed consolidating financial information presents:
1. | Condensed consolidating balance sheet information as of September 30, 2011 and December 31, 2010 condensed consolidating statements of income information for each of the three and nine months ended September 30, 2011 and 2010, and condensed consolidating statements of cash flows information for each of the nine months ended September 30, 2011 and 2010. |
2. | Cinemark USA, Inc. (the Parent and Issuer), combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method of accounting and therefore, the Parent column reflects the equity income (loss) of its Guarantor Subsidiaries and Non-Guarantor Subsidiaries, which are also separately reflected in the stand-alone Guarantor Subsidiaries and Non-Guarantor Subsidiaries column. Additionally, the Guarantor Subsidiaries column reflects the equity income (loss) of its Non-Guarantor Subsidiaries, which are also separately reflected in the stand-alone Non-Guarantor Subsidiaries column. | ||
3. | Elimination entries necessary to consolidate the Parent and all of its Subsidiaries. |
24
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
SEPTEMBER 30, 2011
SEPTEMBER 30, 2011
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 67,046 | $ | 217,295 | $ | 226,932 | $ | | $ | 511,273 | ||||||||||
Other current assets |
36,617 | 34,483 | 33,386 | (32,307 | ) | 72,179 | ||||||||||||||
Accounts receivable from parent or subsidiaries |
147,562 | | | (139,772 | ) | 7,790 | ||||||||||||||
Total current assets |
251,225 | 251,778 | 260,318 | (172,079 | ) | 591,242 | ||||||||||||||
Theatre properties and equipment net |
315,751 | 601,468 | 291,535 | | 1,208,754 | |||||||||||||||
Investment in subsidiaries |
1,338,068 | 473,115 | | (1,811,183 | ) | | ||||||||||||||
Other assets |
1,167,918 | 227,275 | 428,554 | (157,887 | ) | 1,665,860 | ||||||||||||||
Total assets |
$ | 3,072,962 | $ | 1,553,636 | $ | 980,407 | $ | (2,141,149 | ) | $ | 3,465,856 | |||||||||
Liabilities and equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current portion of long-term debt |
$ | 9,244 | $ | | $ | 2,223 | $ | | $ | 11,467 | ||||||||||
Current portion of capital lease obligations |
1,792 | 5,611 | 661 | | 8,064 | |||||||||||||||
Accounts payable and accrued expenses |
114,324 | 56,258 | 98,370 | (27,727 | ) | 241,225 | ||||||||||||||
Accounts payable to parent or subsidiaries |
| 85,060 | 54,712 | (139,772 | ) | | ||||||||||||||
Total current liabilities |
125,360 | 146,929 | 155,966 | (167,499 | ) | 260,756 | ||||||||||||||
Long-term liabilities |
||||||||||||||||||||
Long-term debt, less current portion |
1,565,895 | | 90,571 | (93,496 | ) | 1,562,970 | ||||||||||||||
Capital lease obligations, less current portion |
30,729 | 90,490 | 5,979 | | 127,198 | |||||||||||||||
Other long-term liabilities and deferrals |
323,571 | 145,919 | 75,626 | (68,971 | ) | 476,145 | ||||||||||||||
Total long-term liabilities |
1,920,195 | 236,409 | 172,176 | (162,467 | ) | 2,166,313 | ||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Equity |
||||||||||||||||||||
Cinemark USA, Inc.s stockholders equity: |
||||||||||||||||||||
Common stock |
49,543 | 457,372 | 167,765 | (625,137 | ) | 49,543 | ||||||||||||||
Other stockholders equity |
977,864 | 712,511 | 473,535 | (1,186,046 | ) | 977,864 | ||||||||||||||
Total Cinemark USA, Inc.
stockholders equity |
1,027,407 | 1,169,883 | 641,300 | (1,811,183 | ) | 1,027,407 | ||||||||||||||
Noncontrolling interests |
| 415 | 10,965 | | 11,380 | |||||||||||||||
Total equity |
1,027,407 | 1,170,298 | 652,265 | (1,811,183 | ) | 1,038,787 | ||||||||||||||
Total liabilities and equity |
$ | 3,072,962 | $ | 1,553,636 | $ | 980,407 | $ | (2,141,149 | ) | $ | 3,465,856 | |||||||||
25
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2010
DECEMBER 31, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 70,054 | $ | 185,660 | $ | 209,051 | $ | | $ | 464,765 | ||||||||||
Other current assets |
73,774 | 39,221 | 34,458 | (35,397 | ) | 112,056 | ||||||||||||||
Accounts receivable from parent or subsidiaries |
135,527 | | | (128,799 | ) | 6,728 | ||||||||||||||
Total current assets |
279,355 | 224,881 | 243,509 | (164,196 | ) | 583,549 | ||||||||||||||
Theatre properties and equipment net |
307,302 | 646,906 | 261,238 | | 1,215,446 | |||||||||||||||
Investment in subsidiaries |
1,230,403 | 455,423 | | (1,685,826 | ) | | ||||||||||||||
Other assets |
1,195,916 | 167,587 | 362,047 | (96,571 | ) | 1,628,979 | ||||||||||||||
Total assets |
$ | 3,012,976 | $ | 1,494,797 | $ | 866,794 | $ | (1,946,593 | ) | $ | 3,427,974 | |||||||||
Liabilities and equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Current portion of long-term debt |
$ | 10,836 | $ | | $ | | $ | | $ | 10,836 | ||||||||||
Current portion of capital lease obligations |
1,626 | 5,057 | 665 | | 7,348 | |||||||||||||||
Accounts payable and accrued expenses |
105,748 | 78,779 | 100,788 | (31,707 | ) | 253,608 | ||||||||||||||
Accounts payable to parent or subsidiaries |
| 85,468 | 43,331 | (128,799 | ) | | ||||||||||||||
Total current liabilities |
118,210 | 169,304 | 144,784 | (160,506 | ) | 271,792 | ||||||||||||||
Long-term liabilities |
||||||||||||||||||||
Long-term debt, less current portion |
1,523,640 | | 30,145 | (32,180 | ) | 1,521,605 | ||||||||||||||
Capital lease obligations, less current portion |
31,580 | 94,762 | 6,470 | | 132,812 | |||||||||||||||
Other long-term liabilities and deferrals |
310,446 | 145,948 | 72,747 | (68,081 | ) | 461,060 | ||||||||||||||
Total long-term liabilities |
1,865,666 | 240,710 | 109,362 | (100,261 | ) | 2,115,477 | ||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Equity |
||||||||||||||||||||
Cinemark USA, Inc.s stockholders equity: |
||||||||||||||||||||
Common stock |
49,543 | 457,372 | 167,765 | (625,137 | ) | 49,543 | ||||||||||||||
Other stockholders equity |
979,557 | 627,013 | 433,676 | (1,060,689 | ) | 979,557 | ||||||||||||||
Total Cinemark USA, Inc. stockholders equity |
1,029,100 | 1,084,385 | 601,441 | (1,685,826 | ) | 1,029,100 | ||||||||||||||
Noncontrolling interests |
| 398 | 11,207 | | 11,605 | |||||||||||||||
Total equity |
1,029,100 | 1,084,783 | 612,648 | (1,685,826 | ) | 1,040,705 | ||||||||||||||
Total liabilities and equity |
$ | 3,012,976 | $ | 1,494,797 | $ | 866,794 | $ | (1,946,593 | ) | $ | 3,427,974 | |||||||||
26
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2011
THREE MONTHS ENDED SEPTEMBER 30, 2011
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 169,701 | $ | 275,244 | $ | 206,022 | $ | (10,954 | ) | $ | 640,013 | |||||||||
Cost of operations |
||||||||||||||||||||
Theatre operating expenses |
135,591 | 184,929 | 153,142 | (10,954 | ) | 462,708 | ||||||||||||||
General and administrative expenses |
4,790 | 15,943 | 11,438 | | 32,171 | |||||||||||||||
Depreciation and amortization |
9,040 | 20,221 | 11,281 | | 40,542 | |||||||||||||||
Impairment of long-lived assets |
288 | 15 | 689 | | 992 | |||||||||||||||
(Gain) loss on sale of assets and other |
271 | 1,712 | (174 | ) | | 1,809 | ||||||||||||||
Total cost of operations |
149,980 | 222,820 | 176,376 | (10,954 | ) | 538,222 | ||||||||||||||
Operating income |
19,721 | 52,424 | 29,646 | | 101,791 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(29,241 | ) | (2,624 | ) | (833 | ) | 449 | (32,249 | ) | |||||||||||
Distributions from NCM |
| | 5,108 | | 5,108 | |||||||||||||||
Equity in income of affiliates |
57,310 | 20,634 | 1,730 | (77,955 | ) | 1,719 | ||||||||||||||
Other income |
47 | 474 | 1,025 | (449 | ) | 1,097 | ||||||||||||||
Total other income |
28,116 | 18,484 | 7,030 | (77,955 | ) | (24,325 | ) | |||||||||||||
Income before income taxes |
47,837 | 70,908 | 36,676 | (77,955 | ) | 77,466 | ||||||||||||||
Income taxes |
616 | 19,101 | 9,800 | | 29,517 | |||||||||||||||
Net income |
47,221 | 51,807 | 26,876 | (77,955 | ) | 47,949 | ||||||||||||||
Less: Net income attributable to noncontrolling interests |
| 19 | 709 | | 728 | |||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 47,221 | $ | 51,788 | $ | 26,167 | $ | (77,955 | ) | $ | 47,221 | |||||||||
27
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2010
THREE MONTHS ENDED SEPTEMBER 30, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 150,467 | $ | 265,351 | $ | 166,910 | $ | (22,493 | ) | $ | 560,235 | |||||||||
Cost of operations |
||||||||||||||||||||
Theatre operating expenses |
138,275 | 176,913 | 122,085 | (22,493 | ) | 414,780 | ||||||||||||||
General and administrative expenses |
4,731 | 14,575 | 8,376 | | 27,682 | |||||||||||||||
Depreciation and amortization |
7,547 | 19,493 | 7,944 | | 34,984 | |||||||||||||||
Impairment of long-lived assets |
424 | | 598 | | 1,022 | |||||||||||||||
Loss on sale of assets and other |
266 | 482 | 6,800 | | 7,548 | |||||||||||||||
Total cost of operations |
151,243 | 211,463 | 145,803 | (22,493 | ) | 486,016 | ||||||||||||||
Operating
income (loss) |
(776 | ) | 53,888 | 21,107 | | 74,219 | ||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(26,790 | ) | (2,804 | ) | (738 | ) | 1,394 | (28,938 | ) | |||||||||||
Distributions from NCM |
| | 4,263 | | 4,263 | |||||||||||||||
Equity in income (loss) of affiliates |
50,016 | 14,995 | (1,864 | ) | (64,989 | ) | (1,842 | ) | ||||||||||||
Other income |
72 | 1,492 | 2,319 | (1,394 | ) | 2,489 | ||||||||||||||
Total other income |
23,298 | 13,683 | 3,980 | (64,989 | ) | (24,028 | ) | |||||||||||||
Income before income taxes |
22,522 | 67,571 | 25,087 | (64,989 | ) | 50,191 | ||||||||||||||
Income taxes |
(11,081 | ) | 19,990 | 7,128 | | 16,037 | ||||||||||||||
Net income |
33,603 | 47,581 | 17,959 | (64,989 | ) | 34,154 | ||||||||||||||
Less: Net income (loss) attributable to noncontrolling interests |
| (5 | ) | 556 | | 551 | ||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 33,603 | $ | 47,586 | $ | 17,403 | $ | (64,989 | ) | $ | 33,603 | |||||||||
28
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2011
NINE MONTHS ENDED SEPTEMBER 30, 2011
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 462,919 | $ | 768,859 | $ | 546,409 | $ | (34,445 | ) | $ | 1,743,742 | |||||||||
Cost of operations |
||||||||||||||||||||
Theatre operating expenses |
380,850 | 521,566 | 404,724 | (34,445 | ) | 1,272,695 | ||||||||||||||
General and administrative expenses |
14,159 | 45,970 | 31,160 | | 91,289 | |||||||||||||||
Depreciation and amortization |
27,253 | 61,045 | 31,281 | | 119,579 | |||||||||||||||
Impairment of long-lived assets |
947 | 420 | 2,234 | | 3,601 | |||||||||||||||
(Gain) loss on sale of assets and other |
3,420 | 4,669 | (114 | ) | | 7,975 | ||||||||||||||
Total cost of operations |
426,629 | 633,670 | 469,285 | (34,445 | ) | 1,495,139 | ||||||||||||||
Operating income |
36,290 | 135,189 | 77,124 | | 248,603 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(82,741 | ) | (7,967 | ) | (2,019 | ) | 1,411 | (91,316 | ) | |||||||||||
Distributions from NCM |
1,566 | | 14,964 | | 16,530 | |||||||||||||||
Equity in income of affiliates |
151,989 | 47,654 | 2,353 | (199,643 | ) | 2,353 | ||||||||||||||
Loss on early retirement of debt |
(4,945 | ) | | | | (4,945 | ) | |||||||||||||
Other income |
150 | 1,519 | 5,678 | (1,411 | ) | 5,936 | ||||||||||||||
Total other income |
66,019 | 41,206 | 20,976 | (199,643 | ) | (71,442 | ) | |||||||||||||
Income before income taxes |
102,309 | 176,395 | 98,100 | (199,643 | ) | 177,161 | ||||||||||||||
Income taxes |
(10,945 | ) | 48,936 | 24,231 | | 62,222 | ||||||||||||||
Net income |
113,254 | 127,459 | 73,869 | (199,643 | ) | 114,939 | ||||||||||||||
Less: Net income attributable to noncontrolling interests |
| 63 | 1,622 | | 1,685 | |||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 113,254 | $ | 127,396 | $ | 72,247 | $ | (199,643 | ) | $ | 113,254 | |||||||||
29
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2010
NINE MONTHS ENDED SEPTEMBER 30, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenues |
$ | 450,769 | $ | 790,636 | $ | 435,304 | $ | (60,474 | ) | $ | 1,616,235 | |||||||||
Cost of operations |
||||||||||||||||||||
Theatre operating expenses |
407,127 | 524,585 | 319,177 | (60,474 | ) | 1,190,415 | ||||||||||||||
General and administrative expenses |
13,741 | 42,346 | 21,047 | | 77,134 | |||||||||||||||
Depreciation and amortization |
21,872 | 58,033 | 24,085 | | 103,990 | |||||||||||||||
Impairment of long-lived assets |
937 | 2,358 | 2,762 | | 6,057 | |||||||||||||||
Loss on sale of assets and other |
894 | 2,071 | 8,941 | | 11,906 | |||||||||||||||
Total cost of operations |
444,571 | 629,393 | 376,012 | (60,474 | ) | 1,389,502 | ||||||||||||||
Operating income |
6,198 | 161,243 | 59,292 | | 226,733 | |||||||||||||||
Other income (expense) |
||||||||||||||||||||
Interest expense |
(76,039 | ) | (8,610 | ) | (2,218 | ) | 3,314 | (83,553 | ) | |||||||||||
Distributions from NCM |
980 | | 14,561 | | 15,541 | |||||||||||||||
Equity in income (loss) of affiliates |
146,349 | 36,997 | (5,031 | ) | (183,312 | ) | (4,997 | ) | ||||||||||||
Other income |
287 | 3,345 | 4,683 | (3,314 | ) | 5,001 | ||||||||||||||
Total other income |
71,577 | 31,732 | 11,995 | (183,312 | ) | (68,008 | ) | |||||||||||||
Income before income taxes |
77,775 | 192,975 | 71,287 | (183,312 | ) | 158,725 | ||||||||||||||
Income taxes |
(31,242 | ) | 59,287 | 18,417 | | 46,462 | ||||||||||||||
Net income |
109,017 | 133,688 | 52,870 | (183,312 | ) | 112,263 | ||||||||||||||
Less: Net income attributable to noncontrolling interests |
| 26 | 3,220 | | 3,246 | |||||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 109,017 | $ | 133,662 | $ | 49,650 | $ | (183,312 | ) | $ | 109,017 | |||||||||
30
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2011
NINE MONTHS ENDED SEPTEMBER 30, 2011
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating activities |
||||||||||||||||||||
Net income |
$ | 113,254 | $ | 127,459 | $ | 73,869 | $ | (199,643 | ) | $ | 114,939 | |||||||||
Adjustments to reconcile net income to cash provided
by operating activities |
(98,234 | ) | 24,301 | 35,072 | 199,643 | 160,782 | ||||||||||||||
Changes in assets and liabilities |
55,048 | (32,659 | ) | (5,590 | ) | | 16,799 | |||||||||||||
Net cash provided by operating activities |
70,068 | 119,101 | 103,351 | | 292,520 | |||||||||||||||
Investing activities |
||||||||||||||||||||
Additions to theatre properties and equipment |
(34,199 | ) | (22,580 | ) | (69,404 | ) | | (126,183 | ) | |||||||||||
Proceeds from sale of theatre properties and equipment |
866 | 2,683 | 1,582 | | 5,131 | |||||||||||||||
Acquisition of ten theatres in Argentina |
| | (66,958 | ) | | (66,958 | ) | |||||||||||||
Net transactions with affiliates |
1,840 | (62,732 | ) | | 60,892 | | ||||||||||||||
Investment in joint venture DCIP and other |
(8 | ) | | (1,260 | ) | | (1,268 | ) | ||||||||||||
Net cash used for investing activities |
(31,501 | ) | (82,629 | ) | (136,040 | ) | 60,892 | (189,278 | ) | |||||||||||
Financing activities |
||||||||||||||||||||
Dividends paid to parent |
(71,250 | ) | (625 | ) | (1,254 | ) | 1,879 | (71,250 | ) | |||||||||||
Capital contributions from parent |
| | 6,050 | (6,050 | ) | | ||||||||||||||
Payroll taxes paid as a result of restricted stock
withholdings |
| (494 | ) | | | (494 | ) | |||||||||||||
Proceeds from issuance of senior subordinated notes |
200,000 | | | | 200,000 | |||||||||||||||
Repayments of other long-term debt |
(164,566 | ) | | (21 | ) | | (164,587 | ) | ||||||||||||
Net changes in intercompany notes |
| | 56,721 | (56,721 | ) | | ||||||||||||||
Payments on capital leases |
(1,220 | ) | (3,718 | ) | (376 | ) | | (5,314 | ) | |||||||||||
Payment of debt issue costs |
(4,539 | ) | | | | (4,539 | ) | |||||||||||||
Purchase of noncontrolling interest in Cinemark Chile |
| | (1,443 | ) | | (1,443 | ) | |||||||||||||
Other |
| | (1,211 | ) | | (1,211 | ) | |||||||||||||
Net cash provided by (used for) financing activities |
(41,575 | ) | (4,837 | ) | 58,466 | (60,892 | ) | (48,838 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | (7,896 | ) | | (7,896 | ) | |||||||||||||
Increase (decrease) in cash and cash equivalents |
(3,008 | ) | 31,635 | 17,881 | | 46,508 | ||||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||
Beginning of year |
70,054 | 185,660 | 209,051 | | 464,765 | |||||||||||||||
End of year |
$ | 67,046 | $ | 217,295 | $ | 226,932 | $ | | $ | 511,273 | ||||||||||
31
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2010
NINE MONTHS ENDED SEPTEMBER 30, 2010
Parent | Subsidiary | Subsidiary | ||||||||||||||||||
Company | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Operating activities |
||||||||||||||||||||
Net income |
$ | 109,017 | $ | 133,688 | $ | 52,870 | $ | (183,312 | ) | $ | 112,263 | |||||||||
Adjustments to reconcile net income to cash provided by
(used for) operating activities |
(141,333 | ) | 43,010 | 45,539 | 183,312 | 130,528 | ||||||||||||||
Changes in assets and liabilities |
134,824 | (200,947 | ) | (23,226 | ) | | (89,349 | ) | ||||||||||||
Net cash provided by (used for) operating activities |
102,508 | (24,249 | ) | 75,183 | | 153,442 | ||||||||||||||
Investing activities |
||||||||||||||||||||
Additions to theatre properties and equipment |
(25,065 | ) | (22,281 | ) | (40,910 | ) | | (88,256 | ) | |||||||||||
Proceeds from sale of theatre properties and equipment |
1,561 | 765 | 1,668 | | 3,994 | |||||||||||||||
Investment in joint venture DCIP, net of cash distributions |
| | (1,510 | ) | | (1,510 | ) | |||||||||||||
Net transactions with affiliates |
281 | 4,175 | | (4,456 | ) | | ||||||||||||||
Net cash used for investing activities |
(23,223 | ) | (17,341 | ) | (40,752 | ) | (4,456 | ) | (85,772 | ) | ||||||||||
Financing activities |
||||||||||||||||||||
Dividends paid to parent |
(54,600 | ) | | (287 | ) | 287 | (54,600 | ) | ||||||||||||
Payroll taxes paid as a result of noncash stock option
exercises and restricted stock withholdings |
(416 | ) | | | | (416 | ) | |||||||||||||
Payment of debt issue costs |
(8,849 | ) | | | | (8,849 | ) | |||||||||||||
Repayments of other long-term debt |
(8,127 | ) | | (1,017 | ) | | (9,144 | ) | ||||||||||||
Net changes in intercompany notes |
| | (4,169 | ) | 4,169 | | ||||||||||||||
Payments on capital leases |
(966 | ) | (4,121 | ) | (335 | ) | | (5,422 | ) | |||||||||||
Other |
| | (387 | ) | | (387 | ) | |||||||||||||
Net cash used for financing activities |
(72,958 | ) | (4,121 | ) | (6,195 | ) | 4,456 | (78,818 | ) | |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| | 3,758 | | 3,758 | |||||||||||||||
Increase (decrease) in cash and cash equivalents |
6,327 | (45,711 | ) | 31,994 | | (7,390 | ) | |||||||||||||
Cash and cash equivalents: |
||||||||||||||||||||
Beginning of year |
39,761 | 237,540 | 160,436 | | 437,737 | |||||||||||||||
End of year |
$ | 46,088 | $ | 191,829 | $ | 192,430 | $ | | $ | 430,347 | ||||||||||
32
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., Brazil,
Mexico, Chile, Colombia, Argentina, Ecuador, Peru, Honduras, El Salvador, Nicaragua, Costa Rica,
Panama and Guatemala. As of September 30, 2011, we managed our business under two reportable
operating segments U.S. markets and international markets. 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
promotions and electronic video games located in some of our theatres. Our contracts with NCM have
assisted us in expanding our offerings to domestic advertisers and broadening ancillary revenue
sources such as digital video monitor advertising, third party branding, and the use of our
domestic theatres for alternative entertainment, such as live and pre-recorded concert events, the
opera, sports programs and other cultural events. Films leading the box office during the nine
months ended September 30, 2011 included Rio, Fast Five, Thor, Pirates of the Caribbean: On
Stranger Tides, The Hangover Part II, Kung Fu Panda 2: The Kaboom of Doom, Cars 2, X Men: First
Class, Super 8, Bridesmaids, Transformers: Dark of the Moon, Harry Potter and the Deathly Hallows:
Part 2, Rise of the Planet of the Apes, The Help, and Captain America: The First Avenger. 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 2011 include Twilight:
Breaking Dawn Part One, Paranormal Activity 3, Puss in Boots, Happy Feet Two, Tower Heist, Jack and
Jill, The Muppets, Mission: Impossible Ghost Protocol, Sherlock Holmes 2, The Adventures of
Tintin and Alvin and the Chipmunks: Chipwrecked, 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.
33
Table of Contents
Results of Operations
The following table sets forth, for the periods indicated, certain operating data and the
percentage of revenues represented by certain items reflected in our condensed consolidated
statements of income:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Operating data (in millions): | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Revenues |
||||||||||||||||
Admissions |
$ | 417.1 | $ | 367.6 | $ | 1,134.7 | $ | 1,063.7 | ||||||||
Concession |
194.8 | 170.2 | 530.8 | 488.5 | ||||||||||||
Other |
28.1 | 22.4 | 78.2 | 64.0 | ||||||||||||
Total revenues |
$ | 640.0 | $ | 560.2 | $ | 1,743.7 | $ | 1,616.2 | ||||||||
Cost of operations |
||||||||||||||||
Film rentals and advertising |
225.4 | 200.5 | 613.2 | 582.8 | ||||||||||||
Concession supplies |
32.2 | 26.6 | 85.1 | 73.5 | ||||||||||||
Salaries and wages |
60.1 | 56.8 | 168.2 | 165.6 | ||||||||||||
Facility lease expense |
72.3 | 66.6 | 208.1 | 191.3 | ||||||||||||
Utilities and other |
72.7 | 64.3 | 198.1 | 177.2 | ||||||||||||
General and administrative expenses |
32.2 | 27.7 | 91.2 | 77.2 | ||||||||||||
Depreciation and amortization |
40.5 | 35.0 | 119.6 | 104.0 | ||||||||||||
Impairment of long-lived assets |
1.0 | 1.0 | 3.6 | 6.0 | ||||||||||||
Loss on sale of assets and other |
1.8 | 7.5 | 8.0 | 11.9 | ||||||||||||
Total cost of operations |
538.2 | 486.0 | 1,495.1 | 1,389.5 | ||||||||||||
Operating income |
$ | 101.8 | $ | 74.2 | $ | 248.6 | $ | 226.7 | ||||||||
Operating data as a percentage of total revenues: |
||||||||||||||||
Revenues |
||||||||||||||||
Admissions |
65.2 | % | 65.6 | % | 65.1 | % | 65.8 | % | ||||||||
Concession |
30.4 | % | 30.4 | % | 30.4 | % | 30.2 | % | ||||||||
Other |
4.4 | % | 4.0 | % | 4.5 | % | 4.0 | % | ||||||||
Total revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of operations (1) |
||||||||||||||||
Film rentals and advertising |
54.0 | % | 54.5 | % | 54.0 | % | 54.8 | % | ||||||||
Concession supplies |
16.5 | % | 15.6 | % | 16.0 | % | 15.0 | % | ||||||||
Salaries and wages |
9.4 | % | 10.1 | % | 9.6 | % | 10.2 | % | ||||||||
Facility lease expense |
11.3 | % | 11.9 | % | 11.9 | % | 11.8 | % | ||||||||
Utilities and other |
11.4 | % | 11.5 | % | 11.4 | % | 11.0 | % | ||||||||
General and administrative expenses |
5.0 | % | 4.9 | % | 5.2 | % | 4.8 | % | ||||||||
Depreciation and amortization |
6.3 | % | 6.2 | % | 6.9 | % | 6.4 | % | ||||||||
Impairment of long-lived assets |
0.2 | % | 0.2 | % | 0.2 | % | 0.4 | % | ||||||||
Loss on sale of assets and other |
0.3 | % | 1.3 | % | 0.5 | % | 0.7 | % | ||||||||
Total cost of operations |
84.1 | % | 86.8 | % | 85.7 | % | 86.0 | % | ||||||||
Operating income |
15.9 | % | 13.2 | % | 14.3 | % | 14.0 | % | ||||||||
Average screen count (month end average) |
5,045 | 4,922 | 4,988 | 4,905 | ||||||||||||
Revenues per average screen (dollars) |
$ | 126,886 | $ | 113,817 | $ | 349,580 | $ | 329,528 | ||||||||
(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. |
34
Table of Contents
Three months ended September 30, 2011 and 2010
Revenues. Total revenues increased $79.8 million to $640.0 million for the three months ended
September 30, 2011 (third quarter of 2011) from $560.2 million for the three months ended
September 30, 2010 (third quarter of 2010), representing a 14.2% 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.
U.S. Operating Segment | International Operating Segment | Consolidated | ||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||||||||||||
Admissions revenues (1) |
$ | 287.2 | $ | 262.5 | 9.4 | % | $ | 129.9 | $ | 105.1 | 23.6 | % | $ | 417.1 | $ | 367.6 | 13.5 | % | ||||||||||||||||||
Concession revenues (1) |
$ | 139.0 | $ | 125.0 | 11.2 | % | $ | 55.8 | $ | 45.2 | 23.5 | % | $ | 194.8 | $ | 170.2 | 14.5 | % | ||||||||||||||||||
Other revenues (1) (2) |
$ | 12.2 | $ | 11.2 | 8.9 | % | $ | 15.9 | $ | 11.2 | 42.0 | % | $ | 28.1 | $ | 22.4 | 25.4 | % | ||||||||||||||||||
Total revenues (1) (2) |
$ | 438.4 | $ | 398.7 | 10.0 | % | $ | 201.6 | $ | 161.5 | 24.8 | % | $ | 640.0 | $ | 560.2 | 14.2 | % | ||||||||||||||||||
Attendance (1) |
44.4 | 42.2 | 5.2 | % | 25.0 | 23.5 | 6.4 | % | 69.4 | 65.7 | 5.6 | % | ||||||||||||||||||||||||
Revenues per average screen
(2) |
$ | 113,554 | $ | 103,704 | 9.5 | % | $ | 170,374 | $ | 149,911 | 13.7 | % | $ | 126,886 | $ | 113,817 | 11.5 | % |
(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 $49.5 million was attributable to a 5.6% increase in attendance and a 7.3% increase in average ticket price from $5.60 for the third quarter of 2010 to $6.01 for the third quarter of 2011. The increase in concession revenues of $24.6 million was attributable to the 5.6% increase in attendance and an 8.5% increase in concession revenues per patron from $2.59 for the third quarter of 2010 to $2.81 for the third quarter of 2011. 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 25.4% increase in other revenues was primarily due to increases in international ancillary revenue and the favorable impact of exchange rates in certain countries in which we operate. | |
| U.S. The increase in admissions revenues of $24.7 million was attributable to a 5.2% increase in attendance and a 4.0% increase in average ticket price from $6.22 for the third quarter of 2010 to $6.47 for the third quarter of 2011. The increase in concession revenues of $14.0 million was attributable to the 5.2% increase in attendance and a 5.7% increase in concession revenues per patron from $2.96 for the third quarter of 2010 to $3.13 for the third quarter of 2011. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases. The increase in concession revenues per patron was due to incremental sales and price increases. | |
| International. The increase in admissions revenues of $24.8 million was attributable to a 6.4% increase in attendance and a 16.3% increase in average ticket price from $4.47 for the third quarter of 2010 to $5.20 for the third quarter of 2011. The increase in concession revenues of $10.6 million was attributable to the 6.4% increase in attendance and a 16.1% increase in concession revenues per patron from $1.92 for the third quarter of 2010 to $2.23 for the third quarter of 2011. The increase in attendance is primarily due to new theatres, including the ten theatres acquired in Argentina during the third quarter of 2011. 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 42.0% 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. |
35
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 | ||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Film rentals and advertising |
$ | 158.5 | $ | 146.5 | $ | 66.9 | $ | 54.0 | $ | 225.4 | $ | 200.5 | ||||||||||||
Concession supplies |
18.1 | 15.5 | 14.1 | 11.1 | 32.2 | 26.6 | ||||||||||||||||||
Salaries and wages |
44.0 | 44.4 | 16.1 | 12.4 | 60.1 | 56.8 | ||||||||||||||||||
Facility lease expense |
47.0 | 45.8 | 25.3 | 20.8 | 72.3 | 66.6 | ||||||||||||||||||
Utilities and other |
48.0 | 44.5 | 24.7 | 19.8 | 72.7 | 64.3 |
| Consolidated. Film rentals and advertising costs were $225.4 million, or 54.0% of admissions revenues, for the third quarter of 2011 compared to $200.5 million, or 54.5%, of admissions revenues for the third quarter of 2010. The increase in film rentals and advertising costs of $24.9 million was due to the $49.5 million increase in admissions revenues, partially offset by a decrease in the film rentals and advertising rate. The decrease in the film rentals and advertising rate was primarily due to lower film rental rates in the U.S. segment. Concession supplies expense was $32.2 million, or 16.5% of concession revenues, for the third quarter of 2011 compared to $26.6 million, or 15.6% of concession revenues, for the third quarter of 2010. The increase in the concession supplies rate was primarily due to increases in inventory procurement costs and the increased weighting of our international segment. |
Salaries and wages increased to $60.1 million for the third quarter of 2011 from $56.8 million for the third quarter of 2010 primarily due to increases in our international segment. Facility lease expense increased to $72.3 million for the third quarter of 2011 from $66.6 million for the third quarter of 2010 primarily due to new theatres, increased percentage rent due to increased revenues and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $72.7 million for the third quarter of 2011 from $64.3 million for the third quarter of 2010 primarily due to new theatres, increased expenses related to digital and 3-D equipment, increased utility expenses and the impact of exchange rates in certain countries in which we operate. |
| U.S. Film rentals and advertising costs were $158.5 million, or 55.2% of admissions revenues, for the third quarter of 2011 compared to $146.5 million, or 55.8% of admissions revenues, for the third quarter of 2010. The increase in film rentals and advertising costs of $12.0 million was due to the $24.7 million increase in admissions revenues, partially offset by a decrease in the film rentals and advertising rate. The decrease in the film rentals and advertising rate was primarily due to lower film rental rates negotiated on certain films during the third quarter of 2011. Concession supplies expense was $18.1 million, or 13.0% of concession revenues, for the third quarter of 2011 compared to $15.5 million, or 12.4% of concession revenues, for the third quarter of 2010. The increase in the concession supplies rate was primarily due to increases in inventory procurement costs. |
Salaries and wages decreased to $44.0 million for the third quarter of 2011 from $44.4 million for the third quarter of 2010 primarily due to operating efficiencies achieved with reduced staffing levels. Facility lease expense increased to $47.0 million for the third quarter of 2011 from $45.8 million for the third quarter of 2010 primarily due to new theatres. Utilities and other costs increased to $48.0 million for the third quarter of 2011 from $44.5 million for the third quarter of 2010 primarily due to increased expenses related to digital and 3-D equipment. |
| International. Film rentals and advertising costs were $66.9 million, or 51.5% of admissions revenues, for the third quarter of 2011 compared to $54.0 million, or 51.4% of admissions revenues, for the third quarter of 2010. The increase in film rentals and advertising costs of $12.9 million was primarily due to the $24.8 million increase in admissions revenues. Concession supplies expense was $14.1 million, or 25.3% of concession revenues, for the third quarter of 2011 compared to $11.1 million, or 24.6% of concession revenues, for the third quarter of 2010. The increase in the concession supplies rate was primarily due to increases in inventory procurement costs. |
Salaries and wages increased to $16.1 million for the third quarter of 2011 from $12.4 million for the third quarter of 2010 primarily due to new theatres, including the ten theatres acquired in Argentina during the third quarter of 2011, increased wage rates, increased staffing levels to support the 6.4% increase in attendance and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $25.3 million for the third quarter of 2011 from $20.8 million for the third quarter of 2010 primarily due to new theatres, including the ten theatres acquired in Argentina during the third quarter of 2011, increased percentage rent due to increased |
36
Table of Contents
revenues and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $24.7 million for the third quarter of 2011 from $19.8 million for the third quarter of 2010 primarily due to new theatres, including the ten theatres acquired in Argentina during the third quarter of 2011, increased expenses related to 3-D equipment, increased utility expenses and the impact of exchange rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to $32.2
million for the third quarter of 2011 from $27.7 million for the third quarter of 2010. The
increase was primarily due to increased salaries and incentive compensation of approximately $2.3
million, increased share based awards compensation expense of approximately $0.6 million, increased
travel and related expenses of approximately $0.5 million, increased credit card service charges of
approximately $0.4 million 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 $40.5 million during the third quarter of 2011 compared to
$35.0 million during the third quarter of 2010. The increase was primarily related to new theatres
and the impact of exchange rates in certain countries in which we operate.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $1.0 million during the third quarter of 2011 compared to $1.0 million during the third quarter
of 2010. Impairment charges for the third quarter of 2011 consisted of U.S. and international
theatre properties, impacting six of our twenty-four reporting units. Impairment charges for the
third quarter of 2010 consisted of U.S. and international theatre properties, impacting five 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, adverse changes in market demographics or adverse changes in the development
or the conditions of the areas surrounding the theatre. See Note 13 to our condensed consolidated
financial statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $1.8
million during the third quarter of 2011 compared to $7.5 million during the third quarter of 2010.
The loss recorded during the third quarter of 2011 included a loss of $0.4 million related to the
sale of an equity investment and the write-off of theatre properties and equipment primarily as a
result of theatre remodels. The loss recorded during the third quarter of 2010 included
approximately $5.8 million for the write-off of an intangible asset associated with a vendor
contract in Mexico that was terminated.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were
$32.2 million during the third quarter of 2011 compared to $28.9 million during the third quarter
of 2010. The increase was primarily due to the refinancing of the unextended portion of our term
loan debt outstanding in June 2011 with 7.375% senior
subordinated notes due 2021. See Note 3 to
our condensed consolidated financial statements for further discussion of our long-term debt.
Distributions from NCM. We recorded distributions from NCM of $5.1 million during the third
quarter of 2011 compared to $4.3 million during the third quarter of 2010, which were in excess of
the carrying value of our Tranche 1 investment. See Note 7 to our condensed consolidated financial
statements.
Equity in Income (Loss) of Affiliates. We recorded equity in income of affiliates of $1.7
million during the third quarter of 2011 compared to an equity loss of $1.8 million during the
third quarter of 2010. The equity in income of affiliates recorded during the third quarter of 2011
primarily consisted of income of approximately $3.4 million related to our equity investment in NCM
(see Note 7 to our condensed consolidated financial statements) offset by a loss of approximately
$1.7 million related to our equity investment in DCIP (see Note 8 to our condensed consolidated
financial statements). The equity in loss of affiliates recorded during the third quarter of 2010
primarily consisted of a loss of approximately $4.4 million related to our equity investment in
DCIP offset by income of approximately $2.6 million related to our equity investment in NCM.
Income Taxes. Income tax expense of $29.5 million was recorded for the third quarter of 2011
compared to $16.0 million for the third quarter of 2010. The effective tax rate was 38.1% for the
third quarter of 2011 compared to 32.0% for the third quarter of 2010. 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.
37
Table of Contents
Nine months ended September 30, 2011 and 2010
Revenues. Total revenues increased $127.5 million to $1,743.7 million for the nine months
ended September 30, 2011 (the 2011 period) from $1,616.2 million for the nine months ended
September 30, 2010 (the 2010 period), representing a 7.9% 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 | ||||||||||||||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | 2011 | 2010 | Change | ||||||||||||||||||||||||||||
Admissions revenues (1) |
$ | 792.1 | $ | 791.0 | 0.1 | % | $ | 342.6 | $ | 272.7 | 25.6 | % | $ | 1,134.7 | $ | 1,063.7 | 6.7 | % | ||||||||||||||||||
Concession revenues (1) |
$ | 383.7 | $ | 373.1 | 2.8 | % | $ | 147.1 | $ | 115.4 | 27.5 | % | $ | 530.8 | $ | 488.5 | 8.7 | % | ||||||||||||||||||
Other revenues (1) (2) |
$ | 33.2 | $ | 31.7 | 4.7 | % | $ | 45.0 | $ | 32.3 | 39.3 | % | $ | 78.2 | $ | 64.0 | 22.2 | % | ||||||||||||||||||
Total revenues (1) (2) |
$ | 1,209.0 | $ | 1,195.8 | 1.1 | % | $ | 534.7 | $ | 420.4 | 27.2 | % | $ | 1,743.7 | $ | 1,616.2 | 7.9 | % | ||||||||||||||||||
Attendance (1) |
121.7 | 123.4 | (1.4 | %) | 67.6 | 61.0 | 10.8 | % | 189.3 | 184.4 | 2.7 | % | ||||||||||||||||||||||||
Revenues per average screen (2) |
$ | 314,846 | $ | 311,967 | 0.9 | % | $ | 465,717 | $ | 392,351 | 18.7 | % | $ | 349,580 | $ | 329,528 | 6.1 | % |
(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 $71.0 million was attributable to a 2.7% increase in attendance and a 3.8% increase in average ticket price from $5.77 for the 2010 period to $5.99 for the 2011 period. The increase in concession revenues of $42.3 million was attributable to the 2.7% increase in attendance and a 5.7% increase in concession revenues per patron from $2.65 for the 2010 period to $2.80 for the 2011 period. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the 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 impact of exchange rates in certain countries in which we operate. The 22.2% increase in other revenues was primarily due to increases in international ancillary revenue and the impact of exchange rates in certain countries in which we operate. |
| U.S. The increase in admissions revenues of $1.1 million was attributable to a 1.6% increase in average ticket price from $6.41 for the 2010 period to $6.51 for the 2011 period partially offset by a 1.4% decrease in attendance. The increase in concession revenues of $10.6 million was attributable to a 4.3% increase in concession revenues per patron from $3.02 for the 2010 period to $3.15 for the 2011 period partially offset by the 1.4% decrease in attendance. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases. The increase in concession revenues per patron was due to incremental sales and price increases. |
| International. The increase in admissions revenues of $69.9 million was attributable to a 10.8% increase in attendance and a 13.4% increase in average ticket price from $4.47 for the 2010 period to $5.07 for the 2011 period. The increase in concession revenues of $31.7 million was attributable to the 10.8% increase in attendance and a 15.3% increase in concession revenues per patron from $1.89 for the 2010 period to $2.18 for the 2011 period. The increase in average ticket price was primarily due to incremental 3-D and premium pricing and other price increases and the 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 impact of exchange rates in certain countries in which we operate. |
38
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 | ||||||||||||||||||||||
Nine Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Film rentals and advertising |
$ | 438.5 | $ | 445.7 | $ | 174.7 | $ | 137.1 | $ | 613.2 | $ | 582.8 | ||||||||||||
Concession supplies |
48.3 | 45.0 | 36.8 | 28.5 | 85.1 | 73.5 | ||||||||||||||||||
Salaries and wages |
125.7 | 131.5 | 42.5 | 34.1 | 168.2 | 165.6 | ||||||||||||||||||
Facility lease expense |
139.0 | 136.6 | 69.1 | 54.7 | 208.1 | 191.3 | ||||||||||||||||||
Utilities and other |
132.5 | 124.6 | 65.6 | 52.6 | 198.1 | 177.2 |
| Consolidated. Film rentals and advertising costs were $613.2 million, or 54.0% of admissions revenues, for the 2011 period compared to $582.8 million, or 54.8% of admissions revenues, for the 2010 period. The increase in film rentals and advertising costs of $30.4 million was due to the $71.0 million increase in admissions revenues, partially offset by a decrease in our film rentals and advertising rate. The decrease in the film rentals and advertising rate was primarily due to lower film rental rates in the U.S. segment. Concession supplies expense was $85.1 million, or 16.0% of concession revenues, for the 2011 period, compared to $73.5 million, or 15.0% of concession revenues, for the 2010 period. The increase in the concession supplies rate was primarily due to increases in inventory procurement costs and the increased weighting of our international segment. |
Salaries and wages increased to $168.2 million for the 2011 period from $165.6 million for the 2010 period primarily due to increases in our international segment. Facility lease expense increased to $208.1 million for the 2011 period from $191.3 million for the 2010 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 $198.1 million for the 2011 period from $177.2 million for the 2010 period primarily due to new theatres, increased expenses related to digital and 3-D equipment, increased utility expenses and the impact of exchange rates in certain countries in which we operate. |
| U.S. Film rentals and advertising costs were $438.5 million, or 55.4% of admissions revenues for the 2011 period compared to $445.7 million, or 56.3% of admissions revenues, for the 2010 period. The decrease in film rentals and advertising costs of $7.2 million was primarily due to a decrease in our film rentals and advertising rate. The decrease in the film rentals and advertising rate was primarily due to fewer blockbuster films released in 2011 and lower film rental rates negotiated on certain films during the 2011 period. Concession supplies expense was $48.3 million, or 12.6% of concession revenues, for the 2011 period, compared to $45.0 million, or 12.1% of concession revenues, for the 2010 period. The increase in the concession supplies rate was primarily due to increases in inventory procurement costs. |
Salaries and wages decreased to $125.7 million for the 2011 period from $131.5 million for the 2010 period primarily due to operating efficiencies achieved with reduced staffing levels. Facility lease expense increased to $139.0 million for the 2011 period from $136.6 million for the 2010 period primarily due to new theatres. Utilities and other costs increased to $132.5 million for the 2011 period from $124.6 million for the 2010 period primarily due to new theatres and increased expenses related to digital and 3-D equipment. |
| International. Film rentals and advertising costs were $174.7 million, or 51.0% of admissions revenues, for the 2011 period compared to $137.1 million, or 50.3% of admissions revenues, for the 2010 period. The increase in film rentals and advertising costs of $37.6 million was due to the $69.9 million increase in admissions revenues and an increase in our film rentals and advertising rate. Concession supplies expense was $36.8 million, or 25.0% of concession revenues, for the 2011 period compared to $28.5 million, or 24.7% of concession revenues, for the 2010 period. The increase in the concession supplies rate was primarily due to increases in inventory procurement costs. |
39
Table of Contents
Salaries and wages increased to $42.5 million for the 2011 period from $34.1 million for the 2010 period primarily due to new theatres, increased wage rates, increased staffing levels to support the 10.8% increase in attendance and the impact of exchange rates in certain countries in which we operate. Facility lease expense increased to $69.1 million for the 2011 period from $54.7 million for the 2010 period primarily due to new theatres, increased percentage rent due to increased revenues and the impact of exchange rates in certain countries in which we operate. Utilities and other costs increased to $65.6 million for the 2011 period from $52.6 million for the 2010 period primarily due to new theatres, increased expenses related to 3-D equipment, increased utility expenses and the impact of exchange rates in certain countries in which we operate. |
General and Administrative Expenses. General and administrative expenses increased to $91.2
million for the 2011 period from $77.2 million for the 2010 period. The increase was primarily due
to increased salaries and incentive compensation of approximately $4.9 million, increased share
based awards compensation expense of approximately $2.0 million, increased travel and related
expenses of approximately $1.2 million, increased credit card service charges of approximately $1.3
million 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 $119.6 million for the 2011 period compared to $104.0 million
for the 2010 period. The increase was primarily related to new theatres, the impact of exchange
rates in certain countries in which we operate and the impact of accelerated depreciation taken on
our domestic 35 millimeter projection systems that are being replaced with digital projection
systems, which began in March 2010. We recorded approximately $10.6 million of depreciation expense
related to these 35 millimeter projection systems during the 2011 period compared to $6.0 million
during the 2010 period. Our domestic 35 millimeter projection systems have been fully depreciated
as of September 30, 2011.
Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used
of $3.6 million for the 2011 period compared to $6.0 million for the 2010 period. Impairment
charges for the 2011 period consisted of U.S. and international theatre properties, impacting
fourteen of our twenty-four reporting units. Impairment charges for the 2010 period consisted of
$4.9 million of U.S. and international theatre properties,
impacting sixteen of our twenty-four
reporting units, and $1.1 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, adverse changes
in market demographics or adverse changes in the development or the conditions of the areas
surrounding the theatre. See Note 13 to our condensed consolidated financial statements.
Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $8.0
million during the 2011 period compared to $11.9 million during the 2010 period. The loss recorded
during the 2011 period included a loss of $2.3 million related to a settlement for a previously
terminated interest rate swap agreement, a loss of $1.0 million related to the sale of digital
projection systems to DCIP and the write-off of theatre properties and equipment primarily as a
result of theatre remodels. The loss recorded during the 2010 period included $5.8 million for the
write-off of an intangible asset associated with a vendor contract in Mexico that was terminated,
$1.7 million that was related to 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 our condensed consolidated financial statements for discussion of DCIP.
Interest Expense. Interest costs incurred, including amortization of debt issue costs, were
$91.3 million for the 2011 period compared to $83.6 million for the 2010 period. The increase was
primarily due to the amendment and extension of a portion of our term loan debt during March 2010,
which resulted in increased interest rates, and the subsequent refinancing of the unextended
portion of our term loan debt outstanding in June 2011 with 7.375% senior subordinated notes due
June 2021. See Note 3 to our condensed consolidated financial statements for further discussion of
our long-term debt.
Loss on Early Retirement of Debt. We recorded a loss on early retirement of debt of $4.9
million during the 2011 period related to the prepayment of approximately $157.2 million of the
unextended portion of our term loan debt. The loss included the write-off of $2.2 million of
unamortized debt issue costs related to the portion of the term loan debt that was prepaid and the
reclassification of $2.7 million from accumulated other comprehensive loss to earnings as a result
of our determination that quarterly interest payments hedged by certain of our interest rate swap
agreements are no longer probable to occur. See Note 3 to our condensed consolidated financial
statements for further discussion of our long-term debt and Note 11 to our condensed consolidated
financial statements for discussion of our interest rate swap agreements.
40
Table of Contents
Distributions from NCM. We recorded distributions from NCM of $16.5 million during the 2011
period compared to $15.5 million during the 2010 period, which were in excess of the carrying value
of our Tranche 1 investment. See Note 7 to our condensed consolidated financial statements.
Equity in Income (Loss) of Affiliates. We recorded equity in income of affiliates of $2.4
million during the 2011 period compared to an equity loss of $5.0 million during the 2010 period.
The equity in income of affiliates recorded during the 2011 period primarily included income of
approximately $4.5 million related to our equity investment in NCM (see Note 7 to our condensed
consolidated financial statements), partially offset by a loss of approximately $1.9 million
related to our equity investment in DCIP (see Note 8 to our condensed consolidated financial
statements). The equity in loss of affiliates recorded during the 2010 period primarily included a
loss of approximately $8.6 million related to our equity investment in DCIP, offset by income of
approximately $3.6 million related to our equity investment in NCM.
Income Taxes. Income tax expense of $62.2 million was recorded for the 2011 period compared to
$46.5 million for the 2010 period. The effective tax rate was 35.1% for the 2011 period compared to
29.3% for the 2010 period. 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. Income tax expense for the 2011 period
includes the impact of a reduction of our liabilities for uncertain tax positions due to
settlements and closures of various tax years, which resulted in a tax benefit of approximately
$3.6 million for the 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 tax benefit of approximately
$8.7 million.
41
Table of Contents
Item 4. Controls and Procedures
Evaluation of the Effectiveness of Disclosure Controls and Procedures
As of September 30, 2011, we carried out an evaluation required by the Securities Exchange Act
of 1934, as amended (the Exchange 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 Exchange
Act. Based on this evaluation, our principal executive officer and principal financial officer
concluded that, as of September 30, 2011, 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 Exchange 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 Control 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 September 30, 2011 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
42
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 12, 2011.
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 12, 2011.
Item 5. Other Information
As required by the Indenture governing the Companys 8 ⅝% senior notes and the Indenture
governing the Companys 7 ⅜% senior subordinated notes, the Company has included in this filing,
interim financial information for its subsidiaries that have been designated as unrestricted
subsidiaries, as defined by the Indentures. As required by the Indentures, the Company has included
a condensed consolidating balance sheet and condensed consolidating statements of income and cash
flows for the Company and its subsidiaries. These supplementary schedules separately identify the
Companys restricted subsidiaries and unrestricted subsidiaries as required by the Indentures.
Supplemental Schedules Specified by the Senior Notes Indenture and the Senior Subordinated
Notes Indenture:
Page | ||||
44 | ||||
45 | ||||
46 |
43
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2011
(In thousands, unaudited)
Restricted | Unrestricted | |||||||||||||||
Group | Group | Eliminations | Consolidated | |||||||||||||
Assets |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
$ | 432,496 | $ | 78,777 | $ | | $ | 511,273 | ||||||||
Other current assets |
106,741 | (26,772 | ) | | 79,969 | |||||||||||
Total current assets |
539,237 | 52,005 | | 591,242 | ||||||||||||
Theatre properties and equipment, net |
1,208,754 | | | 1,208,754 | ||||||||||||
Other assets |
1,609,048 | 83,831 | (27,019 | ) | 1,665,860 | |||||||||||
Total assets |
$ | 3,357,039 | $ | 135,836 | $ | (27,019 | ) | $ | 3,465,856 | |||||||
Liabilities and equity |
||||||||||||||||
Current liabilities |
||||||||||||||||
Current portion of long-term debt |
$ | 11,467 | $ | | $ | | $ | 11,467 | ||||||||
Current portion of capital lease obligations |
8,064 | | | 8,064 | ||||||||||||
Accounts payable and accrued expenses |
241,225 | | | 241,225 | ||||||||||||
Total current liabilities |
260,756 | | | 260,756 | ||||||||||||
Long-term liabilities |
||||||||||||||||
Long-term debt, less current portion |
1,562,970 | | | 1,562,970 | ||||||||||||
Capital lease obligations, less current portion |
127,198 | | | 127,198 | ||||||||||||
Other long-term liabilities and deferrals |
426,343 | 49,802 | | 476,145 | ||||||||||||
Total long-term liabilities |
2,116,511 | 49,802 | | 2,166,313 | ||||||||||||
Commitments and contingencies |
||||||||||||||||
Equity |
979,772 | 86,034 | (27,019 | ) | 1,038,787 | |||||||||||
Total liabilities and equity |
$ | 3,357,039 | $ | 135,836 | $ | (27,019 | ) | $ | 3,465,856 | |||||||
Note: Restricted Group and Unrestricted Group are defined in the Indentures for the senior notes and senior subordinated notes.
44
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2011
(In thousands, unaudited)
Restricted | Unrestricted | |||||||||||||||
Group | Group | Eliminations | Consolidated | |||||||||||||
Revenues |
$ | 1,743,742 | $ | | $ | | $ | 1,743,742 | ||||||||
Cost of operations |
||||||||||||||||
Theatre operating costs |
1,272,695 | | | 1,272,695 | ||||||||||||
General and administrative expenses |
91,288 | 1 | | 91,289 | ||||||||||||
Depreciation and amortization |
119,579 | | | 119,579 | ||||||||||||
Impairment of long-lived assets |
3,601 | | | 3,601 | ||||||||||||
Loss on sale of assets and other |
7,975 | | | 7,975 | ||||||||||||
Total cost of operations |
1,495,138 | 1 | | 1,495,139 | ||||||||||||
Operating income (loss) |
248,604 | (1 | ) | | 248,603 | |||||||||||
Other income (expense) |
(88,838 | ) | 17,396 | | (71,442 | ) | ||||||||||
Income before income taxes |
159,766 | 17,395 | | 177,161 | ||||||||||||
Income taxes |
55,734 | 6,488 | | 62,222 | ||||||||||||
Net income |
104,032 | 10,907 | | 114,939 | ||||||||||||
Less: Net income attributable to noncontrolling interests |
1,685 | | | 1,685 | ||||||||||||
Net income attributable to Cinemark USA, Inc. |
$ | 102,347 | $ | 10,907 | $ | | $ | 113,254 | ||||||||
Note: Restricted Group and Unrestricted Group are defined in the Indentures for the senior notes and senior subordinated notes.
45
Table of Contents
CINEMARK USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2011
(In thousands, unaudited)
Restricted | Unrestricted | |||||||||||||||
Group | Group | Eliminations | Consolidated | |||||||||||||
Operating activities |
||||||||||||||||
Net income |
$ | 104,032 | $ | 10,907 | $ | | $ | 114,939 | ||||||||
Adjustments to reconcile net income to cash provided by
operating activities |
158,814 | 1,968 | | 160,782 | ||||||||||||
Changes in assets and liabilities |
8,620 | 8,179 | | 16,799 | ||||||||||||
Net cash provided by operating activities |
271,466 | 21,054 | | 292,520 | ||||||||||||
Investing activities |
||||||||||||||||
Additions to theatre properties and equipment |
(126,183 | ) | | | (126,183 | ) | ||||||||||
Proceeds from sale of theatre properties and equipment |
5,131 | | | 5,131 | ||||||||||||
Acquisition of ten theatres in Argentina |
(66,958 | ) | | | (66,958 | ) | ||||||||||
Investment in joint venture DCIP and other |
(8 | ) | (1,260 | ) | | (1,268 | ) | |||||||||
Net cash used for investing activities |
(188,018 | ) | (1,260 | ) | | (189,278 | ) | |||||||||
Financing activities |
||||||||||||||||
Dividends paid to parent |
(71,250 | ) | | | (71,250 | ) | ||||||||||
Payroll taxes paid as a result of restricted stock withholdings |
(494 | ) | | | (494 | ) | ||||||||||
Payment of debt issue costs |
(4,539 | ) | | | (4,539 | ) | ||||||||||
Repayments of long-term debt |
(164,587 | ) | | | (164,587 | ) | ||||||||||
Proceeds from issuance of senior subordinated notes |
200,000 | | | 200,000 | ||||||||||||
Payments on capital leases |
(5,314 | ) | | | (5,314 | ) | ||||||||||
Other |
(2,654 | ) | | | (2,654 | ) | ||||||||||
Net cash used for financing activities |
(48,838 | ) | | | (48,838 | ) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents |
(7,896 | ) | | | (7,896 | ) | ||||||||||
Increase in cash and cash equivalents |
26,714 | 19,794 | | 46,508 | ||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Beginning of year |
405,782 | 58,983 | | 464,765 | ||||||||||||
End of year |
$ | 432,496 | $ | 78,777 | $ | | $ | 511,273 | ||||||||
Note: Restricted Group and Unrestricted Group are defined in the Indentures for the senior notes and senior subordinated notes.
46
Table of Contents
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. | |
101
|
Financial Statements from the quarterly report on Form 10-Q of Cinemark USA, Inc. for the quarter ended September 30, 2011, filed November 14, 2011, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements tagged as block text. |
* | filed herewith. |
47
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CINEMARK USA, INC. Registrant |
DATE: November 14, 2011
/s/ Alan W. Stock | ||||
Alan W. Stock | ||||
Chief Executive Officer | ||||
/s/ Robert Copple | ||||
Robert Copple | ||||
Chief Financial Officer |
48
Table of Contents
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. | |
101
|
Financial Statements from the quarterly report on Form 10-Q of Cinemark USA, Inc. for the quarter ended September 30, 2011, filed November 14, 2011, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements tagged as block text. |
* | filed herewith. |