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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

Commission File Number: 033-47040

 

 

CINEMARK USA, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   75-2206284

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3900 Dallas Parkway  
Suite 500  
Plano, Texas   75093
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (972) 665-1000

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant 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  x    No  ¨

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   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    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  ¨    No  x

As of July 31, 2014, 1,500 shares of Class A and 182,648 shares of Class B common stock were issued and outstanding.

 

 

 


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

         Page  

PART I. FINANCIAL INFORMATION

  

Item 1.

  Financial Statements   
 

Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 (unaudited)

     4   
 

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2014 and 2013 (unaudited)

     5   
 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013 (unaudited)

     6   
 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)

     7   
 

Notes to Condensed Consolidated Financial Statements (unaudited)

     8   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      36   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      48   

Item 4.

  Controls and Procedures      48   

PART II. OTHER INFORMATION

  

Item 1.

  Legal Proceedings      49   

Item 1A.

  Risk Factors      49   

Item 5.

  Other Information      49   

Item 6.

  Exhibits      54   

SIGNATURES

     55   

 

 

2


Table of Contents

Cautionary Statement Regarding Forward-Looking Statements

Certain matters within this Quarterly Report on Form 10Q include “forward–looking 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” may include our current expectations, assumptions, estimates and projections about our business and our industry. They may 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 Company’s Annual Report on Form 10-K filed March 7, 2014 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 and per share data, unaudited)

 

     June 30,     December 31,  
     2014     2013  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 578,037      $ 599,894   

Inventories

     13,316        13,735   

Accounts receivable

     80,544        81,519   

Current income tax receivable

     2,192        669   

Current deferred tax asset

     16,888        18,807   

Prepaid expenses and other

     12,967        14,940   

Accounts receivable from parent

     11,809        —     
  

 

 

   

 

 

 

Total current assets

     715,753        729,564   

Theatre properties and equipment

     2,501,147        2,402,796   

Less accumulated depreciation and amortization

     1,055,521        975,606   
  

 

 

   

 

 

 

Theatre properties and equipment, net

     1,445,626        1,427,190   

Other assets

    

Goodwill

     1,286,689        1,288,090   

Intangible assets - net

     352,051        356,144   

Investment in NCM

     179,516        178,853   

Investments in and advances to affiliates

     72,895        59,657   

Long-term deferred tax asset

     319        330   

Deferred charges and other assets - net

     75,328        104,300   
  

 

 

   

 

 

 

Total other assets

     1,966,798        1,987,374   
  

 

 

   

 

 

 

Total assets

   $ 4,128,177      $ 4,144,128   
  

 

 

   

 

 

 

Liabilities and equity

    

Current liabilities

    

Current portion of long-term debt

   $ 8,389      $ 9,856   

Current portion of capital lease obligations

     15,216        13,847   

Current income tax payable

     24,261        22,081   

Current liability for uncertain tax positions

     963        963   

Accounts payable and accrued expenses

     292,495        347,552   
  

 

 

   

 

 

 

Total current liabilities

     341,324        394,299   

Long-term liabilities

    

Long-term debt, less current portion

     1,819,444        1,822,944   

Capital lease obligations, less current portion

     200,075        202,509   

Long-term deferred tax liability

     127,585        148,746   

Long-term liability for uncertain tax positions

     15,175        19,167   

Deferred lease expenses

     45,433        43,552   

Deferred revenue - NCM

     339,009        334,429   

Other long-term liabilities

     71,177        74,201   
  

 

 

   

 

 

 

Total long-term liabilities

     2,617,898        2,645,548   

Commitments and contingencies (see Note 18)

    

Equity

    

Cinemark USA, Inc.’s stockholder’s 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

     1,216,117        1,206,498   

Accumulated deficit

     (4,038     (54,703

Accumulated other comprehensive loss

     (77,872     (81,819
  

 

 

   

 

 

 

Total Cinemark USA, Inc.’s stockholder’s equity

     1,159,517        1,095,286   

Noncontrolling interests

     9,438        8,995   
  

 

 

   

 

 

 

Total equity

     1,168,955        1,104,281   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,128,177      $ 4,144,128   
  

 

 

   

 

 

 

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, except per share data, unaudited)

 

     Three months ended June 30,     Six months ended June 30,  
     2014     2013     2014     2013  

Revenues

        

Admissions

   $ 455,726      $ 464,483      $ 836,640      $ 813,897   

Concession

     226,417        228,746        419,440        401,142   

Other

     35,720        32,393        64,063        58,356   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     717,863        725,622        1,320,143        1,273,395   

Cost of operations

        

Film rentals and advertising

     249,198        257,435        449,855        437,427   

Concession supplies

     35,336        37,021        65,389        65,021   

Salaries and wages

     69,942        67,085        134,293        125,554   

Facility lease expense

     80,647        76,124        159,004        145,742   

Utilities and other

     78,570        76,360        154,502        145,112   

General and administrative expenses

     38,752        39,908        77,492        77,120   

Depreciation and amortization

     43,881        38,734        86,377        77,766   

Impairment of long-lived assets

     430        1,101        784        1,945   

(Gain) loss on sale of assets and other

     3,276        (2,801     6,129        (3,143
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     600,032        590,967        1,133,825        1,072,544   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     117,831        134,655        186,318        200,851   

Other income (expense)

        

Interest expense

     (28,286     (34,458     (56,766     (67,064

Interest income

     1,030        594        2,044        1,397   

Foreign currency exchange gain (loss)

     1,825        (1,670     4,877        (340

Loss on early retirement of debt

     —          (72,302     —          (72,302

Distributions from NCM

     1,180        1,693        10,677        7,796   

Equity in income of affiliates

     3,600        1,685        7,220        4,106   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (20,651     (104,458     (31,948     (126,407
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     97,180        30,197        154,370        74,444   

Income taxes

     24,446        8,962        45,549        19,793   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 72,734      $ 21,235      $ 108,821      $ 54,651   

Less: Net income attributable to noncontrolling interests

     403        572        656        1,040   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 72,331      $ 20,663      $ 108,165      $ 53,611   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)

 

     Three months ended June 30,     Six months ended June 30,  
     2014     2013     2014     2013  

Net income

   $ 72,734      $ 21,235      $ 108,821      $ 54,651   

Other comprehensive income (loss), net of tax

        

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of taxes of $391, $963, $759 and $1,391

     661        1,590        1,158        2,366   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $724, $415, $1,916 and $1,249

     1,221        685        3,244        2,041   

Other comprehensive income in equity method investments

     134        1,678        396        1,678   

Foreign currency translation adjustments

     8,346        (40,827     (843     (39,241
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     10,362        (36,874     3,955        (33,156
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net of tax

     83,096        (15,639     112,776        21,495   

Comprehensive income attributable to noncontrolling interests

     (405     (413     (664     (925
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Cinemark USA, Inc.

   $ 82,691      $ (16,052   $ 112,112      $ 20,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

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Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

     Six months ended June 30,  
     2014     2013  

Operating activities

    

Net income

   $ 108,821      $ 54,651   

Adjustments to reconcile net income to cash provided by operating activities:

    

Depreciation

     85,032        75,846   

Amortization of intangible and other assets and favorable/unfavorable leases

     1,345        1,920   

Amortization of long-term prepaid rents

     785        1,379   

Amortization of debt issue costs

     2,623        2,856   

Amortization of deferred revenues, deferred lease incentives and other

     (6,732     (5,266

Amortization of bond discount

     —          482   

Impairment of long-lived assets

     784        1,945   

Share based awards compensation expense

     6,058        6,389   

(Gain) loss on sale of assets and other

     6,129        (3,143

Write-off of unamortized debt discount and debt issue costs related to early retirement of debt

     —          15,688   

Deferred lease expenses

     1,848        2,103   

Deferred income tax expense

     (22,003     (43,081

Equity in income of affiliates

     (7,220     (4,106

Interest paid on redemption of senior notes

     —          (8,054

Distributions from equity investees

     8,352        3,003   

Changes in assets and liabilities and other

     (26,304     10,997   
  

 

 

   

 

 

 

Net cash provided by operating activities

     159,518        113,609   

Investing activities

    

Additions to theatre properties and equipment

     (102,563     (90,388

Proceeds from sale of theatre properties and equipment

     1,547        18,478   

Acquisition of theatres in U.S.

     —          (259,247

Investment in joint ventures and other

     (1,896     (3,264
  

 

 

   

 

 

 

Net cash used for investing activities

     (102,912     (334,421

Financing activities

    

Dividends paid to parent

     (57,500     (48,000

Payroll taxes paid as a result of restricted stock withholdings

     (9,776     (3,464

Issuance of senior notes

     —          530,000   

Redemption of senior notes

     —          (461,946

Repayments of long-term debt

     (4,952     (4,736

Payment of debt issue costs

     —          (9,212

Payments on capital leases

     (6,827     (5,374

Other

     3,340        3,305   
  

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     (75,715     573   

Effect of exchange rate changes on cash and cash equivalents

     (2,748     (6,519
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (21,857     (226,758

Cash and cash equivalents:

    

Beginning of period

     599,894        742,095   
  

 

 

   

 

 

 

End of period

   $ 578,037      $ 515,337   
  

 

 

   

 

 

 

Supplemental information (see Note 15)

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

7


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”), a wholly-owned subsidiary of Cinemark Holdings, Inc., is a leader in the motion picture exhibition industry, with theatres in the United States (“U.S.”), Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala and Bolivia. The Company also managed additional theatres in the U.S., Brazil, and Colombia during the six months ended June 30, 2014.

The accompanying condensed consolidated balance sheet as of December 31, 2013, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. 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, 2013, included in the Annual Report on Form 10-K filed March 7, 2014 by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Operating results for the six months ended June 30, 2014 are not necessarily indicative of the results to be achieved for the full year.

2. New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). The update changes the criteria for reporting discontinued operations and enhances convergence of the FASB’s and International Accounting Standard Board’s reporting requirements for discontinued operations. ASU 2014-08 is effective for a) all disposals or classifications as held for sale of components of an entity that occur within annual periods beginning on or after December 15, 2014 and interim periods within those years and b) all businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within the annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals or classifications as held for sale that have not been reported in financial statements previously issued or available for issuance. We do not expect the adoption of ASU 2014-08 to have a significant impact on our condensed consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The update clarifies the principles for recognizing revenue and creates a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impact of ASU 2014-09 on our condensed consolidated financial statements.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

3. Long-Term Debt Activity

Issuance of 4.875% Senior Notes Due 2023

On May 24, 2013, Cinemark USA, Inc. issued $530,000 aggregate principal amount of 4.875% senior notes due 2023, at par value (the “4.875% Senior Notes”). Proceeds, after payment of fees, were used to finance a redemption of the $470,000 8.625% senior notes due 2019 (the “8.625% Senior Notes”). Interest on the 4.875% Senior Notes is payable on June 1 and December 1 of each year, beginning December 1, 2013. The 4.875% Senior Notes mature on June 1, 2023.

Redemption of 8.625% Senior Notes

On June 24, 2013, Cinemark USA, Inc. redeemed the 8.625% Senior Notes at 112.035% of the principal amount, inclusive of a make-whole premium, plus accrued and unpaid interest, utilizing the proceeds from the issuance of the 4.875% Senior Notes discussed above. As a result of the redemption, the Company wrote-off approximately $8,054 in unamortized bond discount and $7,634 in unamortized debt issue costs, paid the make-whole premium of approximately $56,564 and paid other fees of $50, all of which are reflected in loss on early retirement of debt during the three and six months ended June 30, 2013.

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 Accounting Standards Codification (“ASC”) Topic 820-10-35, Fair Value Measurement. The carrying value of the Company’s long-term debt was $1,827,833 and $1,832,800 as of June 30, 2014 and December 31, 2013, respectively. The fair value of the Company’s long-term debt was $1,860,094 and $1,815,879 as of June 30, 2014 and December 31, 2013, respectively.

4. Acquisitions and Dispositions

Acquisition of Rave Theatres

On May 29, 2013, the Company acquired 32 theatres with 483 screens from Rave Real Property Holdco, LLC and certain of its subsidiaries, Rave Cinemas, LLC and RC Processing, LLC (collectively “Rave”) in an asset purchase for approximately $236,875 in cash plus the assumption of certain liabilities (the “Rave Acquisition”). The acquisition resulted in an expansion of the Company’s domestic theatre base into one new state and seven new markets. The transaction was subject to antitrust approval by the Department of Justice or Federal Trade Commission. The Department of Justice required the Company to agree to divest of three of the newly-acquired theatres, which occurred during August 2013 (see discussion below).

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:

 

Theatre properties and equipment

   $ 102,977   

Tradename

     25,000   

Favorable leases

     17,587   

Goodwill

     186,418   

Unfavorable leases

     (30,718

Deferred revenue

     (6,634

Capital lease liabilities

     (61,651

Other assets, net of other liabilities

     3,896   
  

 

 

 

Total

   $ 236,875   
  

 

 

 

The weighted average amortization period for the intangible assets acquired is approximately 14 years as of the acquisition date. The goodwill is fully deductible for tax purposes.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

The following unaudited pro forma information summarizes our results of operations as if the Rave Acquisition had occurred as of January 1, 2013:

 

     Three Months Ended      Six Months Ended  
     June 30, 2013      June 30, 2013  

Total revenues

   $ 767,348       $ 1,367,959   

Income before income taxes

   $ 36,041       $ 84,021   

Acquisition of Other U.S. Theatres

The Company acquired two additional theatres with 30 screens during April 2013 in two separate transactions for an aggregate purchase price of approximately $22,372 in cash plus the assumption of certain liabilities. The transactions were accounted for by applying the acquisition method. The following table represents the aggregate fair values of identifiable assets acquired and the liabilities assumed as of the acquisition date:

 

Theatre properties and equipment

   $ 17,524   

Goodwill

     17,409   

Capital lease liability

     (12,173

Deferred revenue

     (388
  

 

 

 

Total

   $ 22,372   
  

 

 

 

Disposition of Mexico Subsidiaries

During February 2013, the Company entered into a stock purchase agreement with Grupo Cinemex, S.A. De C.V. pursuant to which the Company would sell its Mexican subsidiaries, which consisted of 31 theatres and 290 screens. The transaction was subject to approval by the Mexican Federal Competition Commission (the “Competition Commission”). During November 2013, the Competition Committee approved the sale and the transaction closed on November 15, 2013. The sales price, which was paid in Mexican pesos, was approximately $126,167, based on the exchange rate at November 15, 2013.

Disposition of Three Rave Theatres

In conjunction with the Rave Acquisition, the Company was required to divest of three theatres pursuant to a Hold Separate Agreement with the Department of Justice. On July 17, 2013, the Company entered into a definitive agreement to sell these three theatres to Carmike Cinemas, Inc. The transaction was approved by the Department of Justice and closed on August 16, 2013.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

5. Equity

Below is a summary of changes in stockholder’s equity attributable to Cinemark USA, Inc., noncontrolling interests and total equity for the six months ended June 30, 2014 and 2013:

 

     Cinemark              
     USA, Inc.              
     Stockholder’s     Noncontrolling     Total  
     Equity     Interests     Equity  

Balance at January 1, 2014

   $ 1,095,286      $ 8,995      $ 1,104,281   

Share based awards compensation expense

     6,058        —          6,058   

Tax benefit related to restricted stock and restricted stock unit vesting

     3,561        —          3,561   

Dividends paid to parent

     (57,500     —          (57,500

Dividends paid to noncontrolling interests

     —          (221     (221

Net income

     108,165        656        108,821   

Fair value adjustments on interest rate swap agreements designated as hedges, net of settlements, net of taxes of $759

     1,158        —          1,158   

Fair value adjustments on available-for-sale securities, net of taxes of $1,916

     3,244        —          3,244   

Other comprehensive income in equity method investments

     396        —          396   

Foreign currency translation adjustments

     (851     8        (843
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

   $ 1,159,517      $ 9,438      $ 1,168,955   
  

 

 

   

 

 

   

 

 

 
     Cinemark              
     USA, Inc.              
     Stockholder’s     Noncontrolling     Total  
     Equity     Interests     Equity  

Balance at January 1, 2013

   $ 1,085,293      $ 10,919      $ 1,096,212   

Share based awards compensation expense

     6,389        —          6,389   

Tax benefit related to restricted stock and restricted stock unit vesting

     3,489        —          3,489   

Dividends paid to parent

     (48,000     —          (48,000

Dividends paid to noncontrolling interests

     —          (184     (184

Net income

     53,611        1,040        54,651   

Fair value adjustments on interest rate swap agreements designated as hedges, net of settlements, net of taxes of $1,391

     2,366        —          2,366   

Fair value adjustments on available-for-sale securities, net of taxes of $1,249

     2,041        —          2,041   

Other comprehensive income in equity method investees

     1,678        —          1,678   

Foreign currency translation adjustments

     (39,126     (115     (39,241
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ 1,067,741      $ 11,660      $ 1,079,401   
  

 

 

   

 

 

   

 

 

 

6. 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. Upon joining NCM, the Company entered into an Exhibitor Services Agreement with NCM (“ESA”), pursuant to which NCM provides advertising, promotion and event services to our theatres. As described further in Note 4 to the Company’s financial statements as included in its 2013 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 initial public offering (“IPO”) of its common stock. In connection with the NCM Inc. initial public offering, the Company amended its operating agreement and the ESA. 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 Company’s Tranche 1 Investment) until NCM’s 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 recognizes cash distributions it receives from NCM on its Tranche 1 Investment as a component of earnings as Distributions from NCM. The Company believes that the accounting model provided by ASC Topic 323-10-35-22 for recognition of equity investee losses in excess of an investor’s basis is analogous to the accounting for equity income subsequent to recognizing an excess distribution.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Below is a summary of activity with NCM included in the Company’s condensed consolidated financial statements:

 

                Distributions                 Other        
    Investment     Deferred     from     Equity in     Other     Comprehensive     Cash  
    in NCM     Revenue     NCM     Earnings     Revenue     Income     Received  

Balance as of January 1, 2014

  $ 178,853      $ (334,429          

Receipt of common units due to annual common unit adjustment

    8,216        (8,216   $ —        $ —        $ —        $ —        $ —     

Revenues earned under ESA (1)

    —          —          —          —          (4,611     —          4,611   

Receipt of excess cash distributions

    (5,967     —          (7,167     —          —          —          13,134   

Receipt under tax receivable agreement

    (2,385     —          (3,510     —          —          —          5,895   

Equity in earnings

    357        —          —          (357     —          —          —     

Equity in other comprehensive income

    442        —          —          —          —          (442     —     

Amortization of deferred revenue

    —          3,636        —          —          (3,636     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of and for the period ended June 30, 2014

  $ 179,516      $ (339,009   $ (10,677   $ (357   $ (8,247   $ (442   $ 23,640   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Amount includes the per patron and per digital screen theatre access fees due to the Company, net of amounts due to NCM for on-screen advertising time provided to the Company’s beverage concessionaire of approximately $5,686.

During the three months ended June 30, 2014 and 2013, the Company recorded equity in earnings (loss) of approximately $(75) and $536, respectively. During the six months ended June 30, 2014 and 2013, the Company recorded equity in earnings of approximately $357 and $1,402, respectively.

Pursuant to a Common Unit Adjustment Agreement dated as of February 13, 2007 between NCM, Inc. and the Company, AMC Entertainment, Inc. (“AMC”) and Regal Entertainment Group (“Regal”), 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. As further discussed in Note 6 to the Company’s financial statements as included in its 2013 Annual Report on Form 10-K, the common units received are recorded at fair value as an increase in the Company’s investment in NCM with an offset to deferred revenue. The deferred revenue is amortized over the remaining term of the ESA. During March 2014, 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 557,631 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 with a corresponding adjustment to deferred revenue of approximately $8,216. The deferred revenue will be recognized over the remaining term of the ESA, which is approximately 22 years.

As of June 30, 2014, the Company owned a total of 24,556,136 common units of NCM, representing an ownership interest of approximately 19%.

On May 5, 2014, NCM, Inc., the sole manager of NCM, announced that it has entered into an agreement to acquire Screenvision, LLC for $375,000, consisting of cash and NCM, Inc. common stock. The transaction is subject to regulatory approval and other customary closing conditions.

Below is summary financial information for NCM for the three and six months ended June 26, 2014 and June 27, 2013.

 

     Three Months Ended      Six Months Ended  
     June 26, 2014      June 27, 2013      June 26, 2014      June 27, 2013  

Gross revenues

   $ 99,958       $ 122,810       $ 170,173       $ 205,029   

Operating income

   $ 42,131       $ 57,928       $ 54,898       $ 79,563   

Net earnings

   $ 26,467       $ 41,153       $ 23,703       $ 46,778   

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

7. Investment in Digital Cinema Implementation Partners

On February 12, 2007, the Company, AMC and Regal entered into a joint venture known as Digital Cinema Implementation Partners LLC (“DCIP”) to facilitate the implementation of digital cinema in the Company’s 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. As of June 30, 2014, 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 Kasima’s economic performance. The Company accounts for its investment in DCIP and its subsidiaries under the equity method of accounting. During the three months ended June 30, 2014 and 2013, the Company recorded equity in earnings of approximately $2,884 and $1,150, respectively. During the six months ended June 30, 2014 and 2013, the Company recorded equity in earnings of $6,178 and $2,702, respectively.

Below is a summary of changes in the Company’s investment in DCIP for the six months ended June 30, 2014:

 

     Investment in  
     DCIP  

Balance as of January 1, 2014

   $ 38,033   

Cash contributions

     1,896   

Equity in income

     6,178   

Equity in other comprehensive loss

     (46
  

 

 

 

Balance as of June 30, 2014

   $ 46,061   
  

 

 

 

The digital projection systems that are leased from Kasima are 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, which was amended effective March 31, 2014, the Company pays minimum annual rent of one thousand dollars per digital projection system. 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 June 30, 2014, the Company had 3,641 digital projection systems being leased under the master equipment lease agreement with Kasima. The Company recorded equipment lease expense of approximately $2,808 and $3,951 during the six months ended June 30, 2014 and 2013, respectively, which is included in utilities and other costs on the condensed consolidated statements of income.

Below is summary financial information for DCIP for the three and six months ended June 30, 2014 and 2013.

 

     Three Months Ended      Six Months Ended  
     June 30, 2014      June 30, 2013      June 30, 2014      June 30, 2013  

Revenues

   $ 43,396       $ 45,022       $ 86,084       $ 88,077   

Operating income

   $ 26,700       $ 28,884       $ 51,004       $ 55,525   

Net income

   $ 19,065       $ 2,456       $ 24,593       $ 14,264   

8. Investment in Marketable Securities – RealD, Inc.

The Company owns 1,222,780 shares of RealD, Inc. (“RealD”) and 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 loss until realized.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

As of June 30, 2014, the estimated fair value of the Company’s investment in RealD was $15,603, which is based on the closing price of RealD’s common stock on June 30, 2014, and falls under Level 1 of the U.S. GAAP fair value hierarchy as defined by ASC Topic 820-10-35. During the six months ended June 30, 2014, the Company recorded an unrealized holding gain of approximately $5,160, before taxes, as a component of accumulated other comprehensive loss on the condensed consolidated balance sheet.

Below is a summary of changes in the Company’s investment in RealD for the six months ended June 30, 2014:

 

     Investment in  
     RealD  

Balance as of January 1, 2014

   $ 10,443   

Unrealized holding gain

     5,160   
  

 

 

 

Balance as of June 30, 2014

   $ 15,603   
  

 

 

 

9. Share Based Awards

Stock Options – During the six months ended June 30, 2014, 14,584 of Cinemark Holdings, Inc.’s stock options that were held by the Company’s employees were exercised at a weighted average exercise price of $7.63 and a total intrinsic value of $296. The Company recognized a tax benefit of approximately $124 related to the stock option exercises. As of June 30, 2014, Cinemark Holdings, Inc. had no stock options outstanding.

Restricted Stock – During the six months ended June 30, 2014, Cinemark Holdings, Inc. granted 261,213 shares of restricted stock to its directors and employees of the Company. The fair value of the restricted stock granted was determined based on the market value of Cinemark Holdings, Inc.’s common stock on the dates of grant, which ranged from $28.54 to $30.30 per share. The Company assumed forfeiture rates ranging from 0% to 5% for the restricted stock awards. Restricted stock granted to Cinemark Holdings, Inc.’s directors vests over a one-year period. Certain of the restricted stock granted to the Company’s employees vests over three years based on continued service and the remaining restricted stock granted to the Company’s 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 six months ended June 30, 2014:

 

     Shares of     Weighted
Average
 
     Restricted     Grant Date  
     Stock     Fair Value  

Outstanding at January 1, 2014

     1,260,913      $ 21.85   

Granted

     261,213      $ 28.72   

Vested

     (619,307   $ 20.50   

Forfeited

     (12,186   $ 19.61   
  

 

 

   

Outstanding at June 30, 2014

     890,633      $ 24.83   
  

 

 

   

Unvested restricted stock at June 30, 2014

     890,633      $ 24.83   
  

 

 

   

The Company receives an income tax deduction upon vesting of the restricted stock awards. The total fair value of shares that vested during the six months ended June 30, 2014 was $18,571. The Company recognized a tax benefit of approximately $6,655 and Cinemark Holdings, Inc. recognized and additional tax benefit of $454 during the six months ended June 30, 2014 related to these vested shares.

The Company recorded compensation expense of $4,455 and $4,724 and Cinemark Holdings, Inc. recorded an additional $531 and $399 related to restricted stock awards during the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, the remaining unrecognized compensation expense related to restricted stock awards was $16,616, $15,899 of which will be recognized by the Company and an additional $717 of which will be recognized by Cinemark Holdings, Inc. The weighted average period over which this remaining compensation expense will be recognized is approximately two years.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

Restricted Stock Units – During the six months ended June 30, 2014, Cinemark Holdings, Inc. granted restricted stock units representing 197,515 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 two fiscal year period ending December 31, 2015 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 two year period is at least 8.5%, which is the threshold, one-third of the restricted stock units vest. If the IRR for the two year period is at least 10.5%, which is the target, two-thirds of the restricted stock units vest. If the IRR for the two 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 two year service requirement and will be paid in the form of common stock of Cinemark Holdings, Inc. if the participant continues to provide services through March 2018, 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 six months ended June 30, 2014 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%

     65,832       $ 1,879   

at IRR of at least 10.5%

     131,683       $ 3,758   

at IRR of at least 12.5%

     197,515       $ 5,637   

Due to the fact that the IRR for the two 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 $28.54 per share. The Company assumed forfeiture rates ranging from 0% to 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 two-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.

The Company recorded compensation expense of $1,603 and $1,665 related to restricted stock unit awards during the six months ended June 30, 2014 and 2013, respectively.

During the six months ended June 30, 2014, 392,238 restricted stock unit awards vested. Upon vesting, each restricted stock unit was converted into one share of Cinemark Holdings, Inc.’s common stock. In addition, Cinemark Holdings, Inc. paid approximately $1,341 in dividends on the vested restricted stock units, which represented dividends that had accumulated on the awards since they were granted in 2010. The fair value of the restricted stock unit awards that vested during the six months ended June 30, 2014 was approximately $11,312. The Company recognized a tax benefit of approximately $4,751 during the six months ended June 30, 2014 related to these vested awards.

As of June 30, 2014, the remaining unrecognized compensation expense related to the outstanding restricted stock unit awards was $6,080. The weighted average period over which this remaining compensation expense will be recognized is approximately two years. As of June 30, 2014, the Company had restricted stock units outstanding that represented a total of 577,097 hypothetical shares of Cinemark Holdings, Inc. common stock, assuming the maximum IRR level is achieved for each of the grants.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

10. Interest Rate Swap Agreements

The Company is currently a party to three interest rate swap agreements that are used to hedge interest rate risk associated with the variable interest rates on the Company’s term loan debt and qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on the Company’s condensed consolidated balance sheet as an asset or liability with the effective portion of the interest rate swaps’ gains or losses reported as a component of accumulated other comprehensive loss and the ineffective portion reported in earnings. The changes in fair values are reclassified from accumulated other comprehensive loss into earnings in the same period that the hedged items affect 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 Company’s 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 13 for a summary of unrealized gains or losses recorded in accumulated other comprehensive loss and earnings.

Below is a summary of the Company’s current interest rate swap agreements designated as cash flow hedges as of June 30, 2014:

 

                                          Estimated  

Nominal

Amount

     Effective Date    Pay Rate     Receive Rate    Expiration Date    Current
Liability (1)
     Long-
Term
Liability (2)
     Total Fair
Value at
June 30,
2014
 
$ 175,000       December 2010      1.3975   1-Month LIBOR    September 2015    $ 2,027       $ 448       $ 2,475   
$ 175,000       December 2010      1.4000   1-Month LIBOR    September 2015      2,058         436         2,494   
$ 100,000       November 2011      1.7150   1-Month LIBOR    April 2016      1,472         818         2,290   

 

 

               

 

 

    

 

 

    

 

 

 
$ 450,000                  $ 5,557       $ 1,702       $ 7,259   

 

 

               

 

 

    

 

 

    

 

 

 

 

(1)  Included in accounts payable and accrued expenses on the condensed consolidated balance sheet as of June 30, 2014.
(2)  Included in other long-term liabilities on the condensed consolidated balance sheet as of June 30, 2014.

The changes in accumulated other comprehensive loss, net of taxes, related to the Company’s interest rate swap agreements for the three and six months ended June 30, 2014 and 2013 were as follows:

 

     Interest Rate Swaps  
     2014     2013  

Beginning balances – April 1

   $ (5,219   $ (8,091 )
  

 

 

   

 

 

 

Other comprehensive income (loss) before reclassifications, net of taxes of $504 and $(75)

     (848     122   

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of taxes of $895 and $888

     1,509        1,468   
  

 

 

   

 

 

 

Net other comprehensive income

     661        1,590   
  

 

 

   

 

 

 

Ending balances – June 30

   $ (4,558   $ (6,501
  

 

 

   

 

 

 
     Interest Rate Swaps  
     2014     2013  

Beginning balances – January 1

   $ (5,716   $ (8,867
  

 

 

   

 

 

 

Other comprehensive loss before reclassifications, net of taxes of $1,010 and $334

     (1,827     (514

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of taxes of $1,769 and $1,725

     2,985        2,880   
  

 

 

   

 

 

 

Net other comprehensive income

     1,158        2,366   
  

 

 

   

 

 

 

Ending balances – June 30

   $ (4,558   $ (6,501
  

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

11. Goodwill and Other Intangible Assets

The Company’s goodwill was as follows:

 

     U.S.
Operating
Segment
     International
Operating
Segment
    Total  

Balance at January 1, 2014 (1)

   $ 1,150,471       $ 137,619      $ 1,288,090   

Foreign currency translation adjustments

     —           (1,401     (1,401
  

 

 

    

 

 

   

 

 

 

Balance at June 30, 2014 (1)

   $ 1,150,471       $ 136,218      $ 1,286,689   
  

 

 

    

 

 

   

 

 

 

 

(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 eighteen 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. Management’s 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 eight times for the evaluation performed during the fourth quarter of 2013.

No events or changes in circumstances occurred during the six months ended June 30, 2014 that indicated the carrying value of goodwill might exceed its estimated fair value.

Intangible assets consisted of the following:

 

     Balance at
January 1,
                Balance at
June 30,
 
   2014     Amortization     Other (1)     2014  

Intangible assets with finite lives:

        

Gross carrying amount

   $ 101,617      $ —        $ (1,216   $ 100,401   

Accumulated amortization

     (46,297     (3,059     —          (49,356
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net intangible assets with finite lives

     55,320        (3,059     (1,216     51,045   

Intangible assets with indefinite lives:

        

Tradename

     300,824        —          182        301,006   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total intangible assets — net

   $ 356,144      $ (3,059   $ (1,034   $ 352,051   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Consists primarily of foreign currency translation adjustments.

Estimated aggregate future amortization expense for intangible assets is as follows:

 

For the six months ended December 31, 2014

   $ 3,169   

For the twelve months ended December 31, 2015

     5,988   

For the twelve months ended December 31, 2016

     5,876   

For the twelve months ended December 31, 2017

     5,319   

For the twelve months ended December 31, 2018

     4,368   

Thereafter

     26,325   
  

 

 

 

Total

   $ 51,045   
  

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

12. 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, 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 theatre’s 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 asset’s 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. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. Fair value is determined based on a multiple of cash flows, which was six and a half times for the evaluations performed during the six months ended June 30, 2014 and 2013. As of June 30, 2014, the estimated aggregate fair value of the long-lived assets impaired during the six months ended June 30, 2014 was approximately $2,071.

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      Six Months Ended  
     June 30,      June 30,  
     2014      2013      2014      2013  

United States theatre properties

   $ 430       $ 651       $ 784       $ 770   

International theatre properties

     —           450         —           1,175   
  

 

 

    

 

 

    

 

 

    

 

 

 

Impairment of long-lived assets

   $ 430       $ 1,101       $ 784       $ 1,945   
  

 

 

    

 

 

    

 

 

    

 

 

 

13. 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.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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 June 30, 2014:

 

     Carrying     Fair Value  

Description

   Value     Level 1      Level 2      Level 3  

Interest rate swap liabilities – current (see Note 10)

   $ (5,557   $ —         $ —         $ (5,557

Interest rate swap liabilities – long term (see Note 10)

   $ (1,702   $ —         $ —         $ (1,702

Investment in RealD (see Note 8)

   $ 15,603      $ 15,603       $ —         $ —     

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, 2013:

 

     Carrying     Fair Value  

Description

   Value     Level 1      Level 2      Level 3  

Interest rate swap liabilities – current (see Note 10)

   $ (5,367   $ —         $ —         $ (5,367

Interest rate swap liabilities – long term (see Note 10)

   $ (3,809   $ —         $ —         $ (3,809

Investment in RealD (see Note 8)

   $ 10,443      $ 10,443       $ —         $ —     

Below is a reconciliation of the beginning and ending balance for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

 

     Liabilities  
     2014     2013  

Beginning balances - January 1

   $ 9,176      $ 14,192   

Total (gain) loss included in accumulated other comprehensive loss

     1,068        (877

Settlements

     (2,985     (2,880
  

 

 

   

 

 

 

Ending balances – June 30

   $ 7,259      $ 10,435   
  

 

 

   

 

 

 

The Company also uses the income approach for fair value measurements on a nonrecurring basis in the impairment evaluations of its long-lived assets (see Note 11 and Note 12). Additionally, the Company uses the market approach to estimate the fair value of its long-term debt (see Note 3). There were no changes in valuation techniques during the period. There were no transfers in or out of Level 1, Level 2 or Level 3 during the six months ended June 30, 2014.

14. Foreign Currency Translation

The accumulated other comprehensive loss account in stockholder’s equity of $77,872 and $81,819 at June 30, 2014 and December 31, 2013, respectively, includes cumulative foreign currency adjustments of $79,798 and $78,947, respectively, from translating the financial statements of the Company’s international subsidiaries, and also includes the change in fair values of the Company’s interest rate swap agreements that are designated as hedges and the change in fair value of the Company’s available-for-sale securities.

All foreign countries where the Company has operations are non-highly inflationary and the local currency is the same as the functional currency in all of the locations. Thus, any fluctuation in the currency results in a cumulative foreign currency translation adjustment recorded to accumulated other comprehensive loss.

Below is a summary of the impact of translating the June 30, 2014 financial statements of certain of the Company’s international subsidiaries:

 

     Exchange Rate as of      Total Assets at      Other Comprehensive
Income (Loss) For The
Six Months Ended
 

Country

   June 30, 2014      December 31, 2013      June 30, 2014      June 30, 2014  

Brazil

     2.21         2.36       $ 363,614       $ 16,666   

Argentina

     8.14         6.52       $ 98,090         (16,625

Chile

     552.10         525.55       $ 52,924         (1,878

All other

              986   
           

 

 

 
            $ (851
           

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

15. Supplemental Cash Flow Information

The following is provided as supplemental information to the condensed consolidated statements of cash flows:

 

     Six Months Ended  
     June 30,  
     2014     2013  

Cash paid for interest

   $ 53,890      $ 61,814   

Cash paid for income taxes, net of refunds received

   $ 64,540      $ 43,748   

Noncash investing and financing activities:

    

Change in accounts payable and accrued expenses for the acquisition of theatre properties and equipment (1)

   $ (4,617   $ (3,222

Theatre properties acquired under capital lease

   $ 4,012      $ 50,840   

Investment in NCM – receipt of common units (see Note 6)

   $ 8,216      $ 98,797   

Change in fair market value of available-for-sale securities, net of taxes (see Note 8)

   $ 3,244      $ 2,041   

 

(1)  Additions to theatre properties and equipment included in accounts payable as of June 30, 2014 and December 31, 2013 were $7,393 and $12,010, respectively.

16. Segments

The Company manages its international market and its U.S. market as separate reportable operating segments, with the international segment consisting of operations in Brazil, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, and Bolivia. Each segment’s 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 total 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
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Revenues

        

U.S.

   $ 524,485      $ 517,109      $ 969,405      $ 883,472   

International

     196,881        211,879        357,073        396,072   

Eliminations

     (3,503     (3,366     (6,335     (6,149
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 717,863      $ 725,622      $ 1,320,143      $ 1,273,395   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

        

U.S.

   $ 121,542      $ 129,138      $ 215,477      $ 209,581   

International

     48,484        49,327        83,499        85,505   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Adjusted EBITDA

   $ 170,026      $ 178,465      $ 298,976      $ 295,086   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures

        

U.S.

   $ 30,483      $ 29,631      $ 60,795      $ 35,787   

International

     19,274        23,868        41,768        54,601   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capital expenditures

   $ 49,757      $ 53,499      $ 102,563      $ 90,388   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

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     Six Months Ended  
   June 30,     June 30,  
     2014     2013     2014     2013  

Net income

   $ 72,734      $ 21,235      $ 108,821      $ 54,651   

Add (deduct):

        

Income taxes

     24,446        8,962        45,549        19,793   

Interest expense (1)

     28,286        34,458        56,766        67,064   

Loss on early retirement of debt

     —          72,302        —          72,302   

Other income (2)

     (6,455     (609     (14,141     (5,163

Depreciation and amortization

     43,881        38,734        86,377        77,766   

Impairment of long-lived assets

     430        1,101        784        1,945   

(Gain) loss on sale of assets and other

     3,276        (2,801     6,129        (3,143

Deferred lease expenses

     249        1,213        1,848        2,103   

Amortization of long-term prepaid rents

     407        729        785        1,379   

Share based awards compensation expense

     2,772        3,141        6,058        6,389   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA(3)

   $ 170,026      $ 178,465      $ 298,976      $ 295,086   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Includes amortization of debt issue costs.
(2)  Includes interest income, foreign currency exchange gain (loss) and equity in income of affiliates and excludes distributions from NCM.
(3) Distributions from NCM are reported entirely within the U.S. operating segment.

Financial Information About Geographic Areas

Below is a breakdown of selected financial information by geographic area:

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  

Revenues

   2014     2013     2014     2013  

U.S.

   $ 524,485      $ 517,109      $ 969,405      $ 883,472   

Brazil

     97,501        82,686        172,900        164,803   

Other international countries

     99,380        129,193        184,173        231,269   

Eliminations

     (3,503     (3,366     (6,335     (6,149
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 717,863      $ 725,622      $ 1,320,143      $ 1,273,395   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Theatre Properties and Equipment-net

   June 30,
2014
     December 31,
2013
 

U.S.

   $ 1,054,954       $ 1,062,471   

Brazil

     234,325         201,492   

Other international countries

     156,347         163,227   
  

 

 

    

 

 

 

Total

   $ 1,445,626       $ 1,427,190   
  

 

 

    

 

 

 

17. Related Party Transactions

The Company manages theatres for Laredo Theatre, Ltd. (“Laredo”). The Company is the sole general partner and owns 75% of the limited partnership interests of Laredo. Lone Star Theatres, Inc. owns the remaining 25% of the limited partnership interests in Laredo and is 100% owned by Mr. David Roberts, Lee Roy Mitchell’s son-in-law. Lee Roy Mitchell is Cinemark Holdings, Inc.’s Chairman of the Board and directly and indirectly owns approximately 9%

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

of Cinemark Holdings, Inc.’s common stock. 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 $279 and $284 of management fee revenues during the six months ended June 30, 2014 and 2013, respectively. All such amounts are included in the Company’s condensed consolidated financial statements with the intercompany amounts eliminated in consolidation.

The Company leases 15 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 16 leases, 14 have fixed minimum annual rent. The two leases without minimum annual rent have rent based upon a specified percentage of gross sales as defined in the lease with no minimum annual rent. For the six months ended June 30, 2014 and 2013, the Company paid total rent of approximately $11,643 and $11,713, respectively, to Syufy.

The Company has paid certain fees and expenses on behalf of its parent, Cinemark Holdings, Inc. and Cinemark Holdings, Inc. has paid income taxes and other items on behalf of the Company. The net receivable from Cinemark Holdings, Inc. as of June 30, 2014 and December 31, 2013 was $11,809 and $0, respectively.

18. Commitments and Contingencies

On June 23, 2014 Cinemark Holdings, Inc.’s board of directors announced that Mr. Sean Gamble will be the Company’s Executive Vice President – Chief Financial Officer. The Company and Mr. Gamble entered into an Employment Agreement to be effective as of August 25, 2014 (the “Agreement”). The term of the Agreement is three years provided, however, that at the end of each year of the term, the term shall be automatically extended for an additional one-year period. The base salary stipulated in the Agreement is subject to review during the term of the Agreement for increase (but not decrease) each year by the compensation committee of Cinemark Holdings, Inc.’s board of directors. Mr. Gamble will be eligible to receive annual cash incentive bonuses upon the Company meeting certain performance targets established by the compensation committee and will be eligible to participate in, and receive grants of equity incentive awards under, the Company’s long-term incentive plan.

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 Company’s financial position, results of operations and cash flows.

19. Condensed Consolidating Financial Information of Subsidiary Guarantors

As of June 30, 2014, the Company had outstanding $400,000 aggregate principal amount of 5.125% senior notes due 2022, or the 5.125% Senior Notes, $530,000 aggregate principal amount of 4.875% senior notes due 2023, or the 4.875% Senior Notes, and $200,000 aggregate principal amount of 7.375% senior subordinated notes due 2021, or the Senior Subordinated Notes (collectively the “Notes”). These Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the following wholly-owned subsidiaries of Cinemark USA, Inc.:

Sunnymead Cinema Corp., Cinemark Properties, Inc., Greeley Holdings, Inc., Inc., Cinemark Partners I, Inc., CNMK Investments, Inc., CNMK Texas Properties, LLC, Cinemark Concessions LLC, Cinemark AB, Inc., 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.

The following supplemental condensed consolidating financial information presents:

 

  a. Condensed consolidating balance sheet information as of December 31, 2013 and June 30, 2014, condensed consolidating statements of income information for the three and six months ended June 30, 2013 and 2014, condensed consolidating statements of comprehensive income (loss) information for the three and six months ended June 30, 2013 and 2014 and condensed consolidating statements of cash flows information for the six months ended June 30, 2013 and 2014.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

  b. 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 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.

 

  c. Elimination entries necessary to consolidate the Parent and all of its Subsidiaries.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

DECEMBER 31, 2013

 

     Parent      Subsidiary      Subsidiary               
     Company      Guarantors      Non-Guarantors      Eliminations     Consolidated  
     (In thousands)  

Assets

             

Current assets

             

Cash and cash equivalents

   $ 62,065       $ 175,758       $ 362,071       $ —        $ 599,894   

Other current assets

     129,514         27,819         85,315         (112,978     129,670   

Accounts receivable from subsidiaries

     481,730         —           —           (481,730     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     673,309         203,577         447,386         (594,708     729,564   

Theatre properties and equipment - net

     448,732         594,720         383,738         —          1,427,190   

Investment in subsidiaries

     1,124,212         394,250         —           (1,518,462     —     

Other assets

     1,411,542         138,199         437,488         145        1,987,374   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,657,795       $ 1,330,746       $ 1,268,612       $ (2,113,025   $ 4,144,128   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and equity

             

Current liabilities

             

Current portion of long-term debt

   $ 7,000       $ —         $ 2,856       $ —        $ 9,856   

Current portion of capital lease obligations

     4,056         8,000         1,791         —          13,847   

Accounts payable and accrued expenses

     250,015         93,045         135,124         (107,588     370,596   

Accounts payable to parent or subsidiaries

     —           328,297         153,433         (481,730     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     261,071         429,342         293,204         (589,318     394,299   

Long-term liabilities

             

Long-term debt, less current portion

     1,816,000         —           6,944         —          1,822,944   

Capital lease obligations, less current portion

     93,231         84,540         24,738         —          202,509   

Other long-term liabilities and deferrals

     392,207         85,155         147,978         (5,245     620,095   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     2,301,438         169,695         179,660         (5,245     2,645,548   

Commitments and contingencies

             

Equity

             

Cinemark USA, Inc.’s stockholder’s equity:

             

Common stock

     49,543         457,368         10,219         (467,587     49,543   

Other stockholder’s equity

     1,045,743         274,341         776,534         (1,050,875     1,045,743   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Cinemark USA, Inc. stockholder’s equity

     1,095,286         731,709         786,753         (1,518,462     1,095,286   

Noncontrolling interests

     —           —           8,995         —          8,995   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,095,286         731,709         795,748         (1,518,462     1,104,281   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 3,657,795       $ 1,330,746       $ 1,268,612       $ (2,113,025   $ 4,144,128   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

June 30, 2014

 

     Parent      Subsidiary      Subsidiary               
     Company      Guarantors      Non-Guarantors      Eliminations     Consolidated  
     (In thousands)  

Assets

             

Current assets

             

Cash and cash equivalents

   $ 69,348       $ 106,502       $ 402,187       $ —        $ 578,037   

Other current assets

     96,371         17,516         80,047         (68,027     125,907   

Accounts receivable from parent and subsidiaries

     372,628         —           —           (360,819     11,809   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     538,347         124,018         482,234         (428,846     715,753   

Theatre properties and equipment - net

     457,202         579,064         409,360         —          1,445,626   

Investment in subsidiaries

     1,242,730         431,016         —           (1,673,746     —     

Other assets

     1,419,921         137,236         405,978         3,663        1,966,798   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,658,200       $ 1,271,334       $ 1,297,572       $ (2,098,929   $ 4,128,177   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and equity

             

Current liabilities

             

Current portion of long-term debt

   $ 7,000       $ —         $ 1,389       $ —        $ 8,389   

Current portion of capital lease obligations

     4,445         8,550         2,221         —          15,216   

Accounts payable and accrued expenses

     203,840         75,777         100,930         (62,828     317,719   

Accounts payable to parent or subsidiaries

     —           194,991         165,828         (360,819     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     215,285         279,318         270,368         (423,647     341,324   

Long-term liabilities

             

Long-term debt, less current portion

     1,812,500         —           6,944         —          1,819,444   

Capital lease obligations, less current portion

     90,949         80,128         28,998         —          200,075   

Other long-term liabilities and deferrals

     379,949         83,428         136,539         (1,537     598,379   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     2,283,398         163,556         172,481         (1,537     2,617,898   

Commitments and contingencies

             

Equity

             

Cinemark USA, Inc.’s stockholder’s equity:

             

Common stock

     49,543         457,368         10,219         (467,587     49,543   

Other stockholder’s equity

     1,109,974         371,092         835,066         (1,206,158     1,109,974   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Cinemark USA, Inc. stockholder’s equity

     1,159,517         828,460         845,285         (1,673,745     1,159,517   

Noncontrolling interests

     —           —           9,438         —          9,438   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,159,517         828,460         854,723         (1,673,745     1,168,955   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 3,658,200       $ 1,271,334       $ 1,297,572       $ (2,098,929   $ 4,128,177   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

25


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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

THREE MONTHS ENDED JUNE 30, 2013

 

     Parent     Subsidiary     Subsidiary              
     Company     Guarantors     Non-Guarantors     Eliminations     Consolidated  
     (In thousands)  

Revenues

   $ 211,962      $ 304,453      $ 219,285      $ (10,078   $ 725,622   

Cost of operations

          

Theatre operating expenses

     165,094        202,538        156,471        (10,078     514,025   

General and administrative expenses

     6,575        17,926        15,407        —          39,908   

Depreciation and amortization

     10,812        15,817        12,105        —          38,734   

Impairment of long-lived assets

     574        77        450        —          1,101   

(Gain) loss on sale of assets and other

     (3,606     804        1        —          (2,801
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     179,449        237,162        184,434        (10,078     590,967   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     32,513        67,291        34,851        —          134,655   

Other income (expense)

          

Interest expense

     (31,017     (2,504     (937     —          (34,458

Loss on early retirement of debt

     (72,302     —          —          —          (72,302

Distributions from NCM

     —          —          1,693        —          1,693   

Equity in income of affiliates

     65,923        13,288        1,685        (79,211     1,685   

Other income (expense)

     24        2        (1,102     —          (1,076
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (37,372     10,786        1,339        (79,211     (104,458
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (4,859     78,077        36,190        (79,211     30,197   

Income taxes

     (25,522     24,415        10,069        —          8,962   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     20,663        53,662        26,121        (79,211     21,235   

Less: Net income attributable to noncontrolling interests

     —          —          572        —          572   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 20,663      $ 53,662      $ 25,549      $ (79,211   $ 20,663   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

THREE MONTHS ENDED JUNE 30, 2014

 

     Parent     Subsidiary     Subsidiary              
     Company     Guarantors     Non-Guarantors     Eliminations     Consolidated  
     (In thousands)  

Revenues

   $ 227,655      $ 299,984      $ 203,803      $ (13,579   $ 717,863   

Cost of operations

          

Theatre operating expenses

     184,745        199,622        142,905        (13,579     513,693   

General and administrative expenses

     5,298        19,108        14,346        —          38,752   

Depreciation and amortization

     12,258        16,851        14,772        —          43,881   

Impairment of long-lived assets

     360        70        —          —          430   

Loss on sale of assets and other

     1,728        767        781        —          3,276   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     204,389        236,418        172,804        (13,579     600,032   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     23,266        63,566        30,999        —          117,831   

Other income (expense)

          

Interest expense

     (25,053     (2,308     (925     —          (28,286

Distributions from NCM

     —          —          1,180        —          1,180   

Equity in income of affiliates

     75,552        23,607        3,603        (99,162     3,600   

Other income

     6        2        2,847        —          2,855   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     50,505        21,301        6,705        (99,162     (20,651
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     73,771        84,867        37,704        (99,162     97,180   

Income taxes

     1,440        23,728        (722     —          24,446   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     72,331        61,139        38,426        (99,162     72,734   

Less: Net income attributable to noncontrolling interests

     —          —          403        —          403   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 72,331      $ 61,139      $ 38,023      $ (99,162   $ 72,331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

SIX MONTHS ENDED JUNE 30, 2013

 

     Parent     Subsidiary     Subsidiary              
     Company     Guarantors     Non-Guarantors     Eliminations     Consolidated  
     (In thousands)  

Revenues

   $ 354,743      $ 528,657      $ 408,899      $ (18,904   $ 1,273,395   

Cost of operations

          

Theatre operating expenses

     282,637        356,957        298,166        (18,904     918,856   

General and administrative expenses

     11,941        35,932        29,247        —          77,120   

Depreciation and amortization

     19,544        31,253        26,969        —          77,766   

Impairment of long-lived assets

     608        162        1,175        —          1,945   

(Gain) loss on sale of assets and other

     (3,391     662        (414     —          (3,143
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     311,339        424,966        355,143        (18,904     1,072,544   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     43,404        103,691        53,756        —          200,851   

Other income (expense)

          

Interest expense

     (59,470     (4,982     (2,612     —          (67,064

Loss on early retirement of debt

     (72,302     —          —          —          (72,302

Distributions from NCM

     125        —          7,671        —          7,796   

Equity in income of affiliates

     111,685        32,649        4,106        (144,334     4,106   

Other income

     42        5        1,010        —          1,057   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (19,920     27,672        10,175        (144,334     (126,407
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     23,484        131,363        63,931        (144,334     74,444   

Income taxes

     (30,127     37,625        12,295        —          19,793   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     53,611        93,738        51,636        (144,334     54,651   

Less: Net income attributable to noncontrolling interests

     —          —          1,040        —          1,040   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 53,611      $ 93,738      $ 50,596      $ (144,334   $ 53,611   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

SIX MONTHS ENDED JUNE 30, 2014

 

     Parent     Subsidiary     Subsidiary              
     Company     Guarantors     Non-Guarantors     Eliminations     Consolidated  
     (In thousands)  

Revenues

   $ 423,910      $ 549,820        369,264        (22,851   $ 1,320,143   

Cost of operations

          

Theatre operating expenses

     349,327        373,540        263,027        (22,851     963,043   

General and administrative expenses

     10,643        40,188        26,661        —          77,492   

Depreciation and amortization

     24,592        33,421        28,364        —          86,377   

Impairment of long-lived assets

     689        95        —          —          784   

Loss on sale of assets and other

     3,622        1,543        964        —          6,129   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     388,873        448,787        319,016        (22,851     1,133,825   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     35,037        101,033        50,248        —          186,318   

Other income (expense)

          

Interest expense

     (50,304     (4,668     (1,794     —          (56,766

Distributions from NCM

     2,207        —          8,470        —          10,677   

Equity in income of affiliates

     119,906        37,898        7,223        (157,807     7,220   

Other income (expense)

     25        (1     6,897        —          6,921   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     71,834        33,229        20,796        (157,807     (31,948
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     106,871        134,262        71,044        (157,807     154,370   

Income taxes

     (1,294     35,684        11,159        —          45,549   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     108,165        98,578        59,885        (157,807     108,821   

Less: Net income attributable to noncontrolling interests

     —          —          656        —          656   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 108,165      $ 98,578      $ 59,229      $ (157,807   $ 108,165   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) INFORMATION

THREE MONTHS ENDED JUNE 30, 2013

 

    Parent     Subsidiary     Subsidiary              
    Company     Guarantors     Non-Guarantors     Eliminations     Consolidated  
    (In thousands)  

Net income

  $ 20,663      $ 53,662      $ 26,121      $ (79,211   $ 21,235   

Other comprehensive income (loss), net of tax

         

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of taxes of $963

    1,590        —          —          —          1,590   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $415

    685        —          —          —          685   

Other comprehensive income in equity method investments

    1,678        —          1,678        (1,678     1,678   

Foreign currency translation adjustments

    (40,668     —          (40,827     40,668        (40,827
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

    (36,715     —          (39,149     38,990        (36,874
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net of tax

  $ (16,052   $ 53,662      $ (13,028   $ (40,221   $ (15,639

Comprehensive income attributable to noncontrolling interests

    —          —          (413     —          (413
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Cinemark USA, Inc.

  $ (16,052   $ 53,662      $ (13,441   $ (40,221   $ (16,052
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

THREE MONTHS ENDED JUNE 30, 2014

 

     Parent      Subsidiary      Subsidiary              
     Company      Guarantors      Non-Guarantors     Eliminations     Consolidated  
     (In thousands)  

Net income

   $ 72,331       $ 61,139       $ 38,426      $ (99,162   $ 72,734   

Other comprehensive income, net of tax

            

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of settlements, net of taxes of $391

     661         —           —          —          661   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $724

     1,221         —           —          —          1,221   

Other comprehensive income of equity method investments

     134         —           123        (123     134   

Foreign currency translation adjustments

     8,344         —           8,346        (8,344     8,346   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income, net of tax

     10,360         —           8,469        (8,467     10,362   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 82,691       $ 61,139       $ 46,895      $ (107,629   $ 83,096   

Comprehensive income attributable to noncontrolling interests

     —           —           (405     —          (405
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 82,691       $ 61,139       $ 46,490      $ (107,629   $ 82,691   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

SIX MONTHS ENDED JUNE 30, 2013

 

     Parent     Subsidiary      Subsidiary              
     Company     Guarantors      Non-Guarantors     Eliminations     Consolidated  
     (In thousands)  

Net income

   $ 53,611      $ 93,738       $ 51,636      $ (144,334   $ 54,651   

Other comprehensive income (loss), net of tax

           

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of taxes of $1,391

     2,366        —           —          —          2,366   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $1,249

     2,041        —           —          —          2,041   

Other comprehensive income in equity method investments

     1,678        —           1,678        (1,678     1,678   

Foreign currency translation adjustments

     (39,126     —           (39,241     39,126        (39,241
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (33,041     —           (37,563     37,448        (33,156
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 20,570      $ 93,738       $ 14,073      $ (106,886   $ 21,495   

Comprehensive income attributable to noncontrolling interests

     —          —           (925     —          (925
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 20,570      $ 93,738       $ 13,148      $ (106,886   $ 20,570   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

SIX MONTHS ENDED JUNE 30, 2014

 

     Parent     Subsidiary      Subsidiary              
     Company     Guarantors      Non-Guarantors     Eliminations     Consolidated  
     (In thousands)  

Net income

   $ 108,165      $ 98,578       $ 59,885      $ (157,807   $ 108,821   

Other comprehensive income (loss), net of tax

           

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of settlements, net of taxes of $759

     1,158        —           —          —          1,158   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $1,916

     3,244        —           —          —          3,244   

Other comprehensive income of equity method investments

     396        —           385        (385     396   

Foreign currency translation adjustments

     (851     —           (843     851        (843
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     3,947        —           (458     466        3,955   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 112,112      $ 98,578       $ 59,427      $ (157,341   $ 112,776   

Comprehensive income attributable to noncontrolling interests

     —          —           (664     —          (664
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 112,112      $ 98,578       $ 58,763      $ (157,341   $ 112,112   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

SIX MONTHS ENDED JUNE 30, 2013

 

     Parent     Subsidiary     Subsidiary              
     Company     Guarantors     Non-Guarantors     Eliminations     Consolidated  
     (In thousands)  

Operating activities

          

Net income

   $ 53,611      $ 93,738      $ 51,636      $ (144,334   $ 54,651   

Adjustments to reconcile net income to cash provided by operating activities and other

     (128,888     5,225        27,290        144,334        47,961   

Changes in assets and liabilities and other

     89,564        (68,707     (9,860     —          10,997   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     14,287        30,256        69,066        —          113,609   

Investing activities

          

Additions to theatre properties and equipment

     (4,251     (31,258     (54,879     —          (90,388

Proceeds from sale of theatre properties and equipment

     10,168        8,273        37        —          18,478   

Acquisition of theatres in U.S.

     (241,253     (17,994     —          —          (259,247

Dividends received from subsidiaries

     1,713        2        —          (1,715     —     

Other

     —          —          (3,264     —          (3,264
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (233,623     (40,977     (58,106     (1,715     (334,421

Financing activities

          

Dividends paid to parent

     (48,000     —          (1,715     1,715        (48,000

Issuance of senior notes

     530,000        —          —          —          530,000   

Redemption of senior notes

     (461,946     —          —          —          (461,946

Repayments of long-term debt

     (3,500     —          (1,236     —          (4,736

Payment of debt issue costs

     (9,212     —          —          —          (9,212

Payments on capital leases

     (980     (3,299     (1,095     —          (5,374

Other

     3,489        (3,464     (184     —          (159
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     9,851        (6,763     (4,230     1,715        573   

Effect of exchange rate changes on cash and cash equivalents

     —          —          (6,519     —          (6,519
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (209,485     (17,484     211        —          (226,758

Cash and cash equivalents:

          

Beginning of year

     305,627        193,863        242,605        —          742,095   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

   $ 96,142      $ 176,379      $ 242,816      $ —        $ 515,337   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

SIX MONTHS ENDED JUNE 30, 2014

 

     Parent     Subsidiary     Subsidiary              
     Company     Guarantors     Non-Guarantors     Eliminations     Consolidated  
     (In thousands)  

Operating activities

          

Net income

   $ 108,165      $ 98,578      $ 59,885      $ (157,807   $ 108,821   

Adjustments to reconcile net income to cash provided by (used for) operating activities

     (109,780     2,499        26,475        157,807        77,001   

Changes in assets and liabilities and other

     107,181        (136,760     3,275        —          (26,304
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     105,566        (35,683     89,635        —          159,518   

Investing activities

          

Additions to theatre properties and equipment

     (40,591     (19,960     (42,012     —          (102,563

Proceeds from sale of theatre properties and equipment

     1,032        26        489        —          1,547   

Dividends received from subsidiaries

     925        —          —          (925     —     

Investment in joint ventures and other

     —          —          (1,896     —          (1,896
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (38,634     (19,934     (43,419     (925     (102,912

Financing activities

          

Dividends paid to parent

     (57,500     —          (925     925        (57,500

Repayments of long-term debt

     (3,500     —          (1,452     —          (4,952

Payments on capital leases

     (1,989     (3,863     (975     —          (6,827

Other

     3,340        (9,776     —          —          (6,436
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

     (59,649     (13,639     (3,352     925        (75,715

Effect of exchange rate changes on cash and cash equivalents

     —          —          (2,748     —          (2,748
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     7,283        (69,256     40,116        —          (21,857

Cash and cash equivalents:

          

Beginning of year

     62,065        175,758        362,071        —          599,894   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

   $ 69,348      $ 106,502      $ 402,187      $ —        $ 578,037   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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Item 2. Management’s 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, Argentina, Chile, Colombia, Peru, Ecuador, Honduras, El Salvador, Nicaragua, Costa Rica, Panama, Guatemala, and Bolivia. As of June 30, 2014, we managed our business under two reportable operating segments — U.S. markets and international markets. See Note 16 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, meeting rentals 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 and third party branding. Historically, we have also offered alternative entertainment, such as live and pre-recorded sports programs, concert events, the MET opera and other special presentations in our theatres through our relationship with NCM. We are continuing to offer this entertainment through our recently formed joint venture, AC JV, LLC. Our Flix Media initiative has allowed us to expand our screen advertising within our international circuit and to other international exhibitors. Films leading the box office during the six months ended June 30, 2014 included the carryover of Frozen as well as new releases Captain America: The Winter Soldier, The LEGO® Movie, X-Men: Days of Future Past, The Amazing Spider-Man 2, Godzilla, 22 Jump Street, Ride Along, Maleficent, Rio 2, How to Train Your Dragon 2, Lone Survivor, Divergent, The Fault in Our Stars and 300: Rise of an Empire among other films. Films currently scheduled for release during the remainder of 2014 include sequels such as Hunger Games: Mockingjay Part I, Hobbit: The Battle of the Five Armies, Dawn of the Planet of the Apes, Night at the Museum 3 and new films such as Guardians of the Galaxy, Into the Woods, Fury, Gone Girl, Exodus and Interstellar, 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 film’s 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 newspaper’s 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. In some international locations, staffing levels are also subject to local regulations.

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.

 

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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. On May 29, 2013, we completed the Rave Acquisition, which consisted of 32 theatres with 483 screens. The results of operations for these theatres are reflected as of the date of acquisition. On November 15, 2013, we sold our Mexico theatres, which included 31 theatres and 290 screens. See Note 4 to our condensed consolidated financial statements for discussion of these transactions.

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2014     2013     2014     2013  

Operating data (in millions):

        

Revenues

        

Admissions

   $ 455.7      $ 464.5      $ 836.6      $ 813.9   

Concession

     226.5        228.7        419.5        401.1   

Other

     35.7        32.4        64.1        58.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 717.9      $ 725.6      $ 1,320.2      $ 1,273.4   

Cost of operations

        

Film rentals and advertising

     249.2        257.4        449.9        437.4   

Concession supplies

     35.4        37.0        65.4        65.0   

Salaries and wages

     69.9        67.1        134.3        125.6   

Facility lease expense

     80.6        76.1        159.0        145.7   

Utilities and other

     78.6        76.4        154.5        145.1   

General and administrative expenses

     38.8        39.9        77.5        77.1   

Depreciation and amortization

     43.9        38.7        86.4        77.8   

Impairment of long-lived assets

     0.4        1.1        0.8        1.9   

(Gain) loss on sale of assets and other

     3.3        (2.8     6.1        (3.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     600.1        590.9        1,133.9        1,072.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 117.8      $ 134.7      $ 186.3      $ 200.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating data as a percentage of total revenues:

        

Revenues

        

Admissions

     63.5     64.0     63.4     63.9

Concession

     31.5     31.5     31.8     31.5

Other

     5.0     4.5     4.8     4.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of operations (1)

        

Film rentals and advertising

     54.7     55.4     53.8     53.7

Concession supplies

     15.6     16.2     15.6     16.2

Salaries and wages

     9.7     9.2     10.2     9.9

Facility lease expense

     11.2     10.5     12.0     11.4

Utilities and other

     10.9     10.5     11.7     11.4

General and administrative expenses

     5.4     5.5     5.9     6.1

Depreciation and amortization

     6.1     5.3     6.5     6.1

Impairment of long-lived assets

     0.1     0.2     0.1     0.2

(Gain) loss on sale of assets and other

     0.5     (0.4 )%      0.5     (0.2 )% 

Total cost of operations

     83.6     81.4     85.9     84.2

Operating income

     16.4     18.6     14.1     15.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Average screen count (month end average)

     5,597        5,530        5,590        5,409  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues per average screen (dollars)

   $ 128,259      $ 131,216      $ 236,162      $ 235,422  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) All costs are expressed as a percentage of total revenues, except film rentals and advertising, which are expressed as a percentage of admissions revenues and concession supplies, which are expressed as a percentage of concession revenues.

 

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Three months ended June 30, 2014 versus June 30, 2013

Revenues. Total revenues decreased $7.7 million to $717.9 million for the three months ended June 30, 2014 (“second quarter of 2014”) from $725.6 million for the three months ended June 30, 2013 (“second quarter of 2013”), representing a 1.1% decrease. 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  
     June 30,     June 30,     June 30,  
                   %                   %                   %  
     2014      2013      Change     2014      2013      Change     2014      2013      Change  

Admissions revenues(1)

   $ 334.7       $ 335.9         (0.4 )%    $ 121.0       $ 128.6         (5.9 )%    $ 455.7       $ 464.5         (1.9 )% 

Concession revenues(1)

   $ 170.6       $ 164.2         3.9   $ 55.9       $ 64.5         (13.3 )%    $ 226.5       $ 228.7         (1.0 )% 

Other revenues(1)(2)

   $ 15.7       $ 13.6         15.4   $ 20.0       $ 18.8         6.4   $ 35.7       $ 32.4         10.2

Total revenues (1)(2)

   $ 521.0       $ 513.7         1.4   $ 196.9       $ 211.9         (7.1 )%    $ 717.9       $ 725.6         (1.1 )% 

Attendance(1)

     46.5         46.9         (0.9 )%      24.0         26.5         (9.4 )%      70.5         73.4         (4.0 )% 

 

(1)  Amounts in millions.
(2)  U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 16 of our condensed consolidated financial statements.

 

    U.S. Admissions revenues decreased slightly due to a 0.9% decrease in attendance, partially offset by a 0.6% increase in average ticket price from $7.16 for the second quarter of 2013 to $7.20 for the second quarter of 2014. The increase in concession revenues of $6.4 million was primarily attributable to a 4.9% increase in concession revenues per patron from $3.50 for the second quarter of 2013 to $3.67 for the second quarter of 2014, partially offset by the 0.9% decrease in attendance. The slight decrease in attendance was due to the decrease in the number of blockbuster films released during the second quarter of 2014 compared to the second quarter of 2013. The increase in average ticket price was primarily due to price increases and the pricing at the acquired Rave theatres. The increase in concession revenues per patron was primarily due to incremental sales and price increases. Our revenues and attendance for the second quarter of 2014 also benefited from the inclusion of the 32 Rave theatres acquired on May 29, 2013 (see Note 4 to the condensed consolidated financial statements).

 

    International. Decreases in revenues and attendance were primarily due to the sale of our Mexico theatres, which occurred during November 2013, partially offset by the impact of new theatres opened in certain of our other countries. Admissions revenues decreased $7.6 million, concession revenues decreased $8.6 million and attendance decreased 9.4%. Average ticket price increased 3.9% from $4.85 for the second quarter of 2013 to $5.04 for the second quarter of 2014. Concession revenues per patron decreased 4.1% from $2.43 for the second quarter of 2013 to $2.33 for the second quarter of 2014. The increase in average ticket price was primarily due to an increase in the mix of 3D tickets and local currency price increases partially offset by the unfavorable impact of exchange rates in certain countries in which we operate. The decrease in concession revenues per patron was primarily due to the unfavorable impact of exchange rates in certain countries in which we operate.

Cost of Operations. The table below summarizes certain of our year-over-year theatre operating costs by reportable operating segment (in millions).

 

     U.S. Operating Segment      International Operating Segment      Consolidated  
     Three Months Ended
June 30,
     Three Months Ended
June 30,
     Three Months Ended
June 30,
 
     2014      2013      2014      2013      2014      2013  

Film rentals and advertising

   $ 190.4       $ 192.7       $ 58.8       $ 64.7       $ 249.2       $ 257.4   

Concession supplies

     23.3         23.5         12.1         13.5         35.4         37.0   

Salaries and wages

     51.9         47.5         18.0         19.6         69.9         67.1   

Facility lease expense

     58.5         51.8         22.1         24.3         80.6         76.1   

Utilities and other

     55.1         50.7         23.5         25.7         78.6         76.4   

 

   

U.S. Film rentals and advertising costs were $190.4 million, or 56.9% of admissions revenues, for the second quarter of 2014 compared to $192.7 million, or 57.4% of admissions revenues, for the second quarter of 2013. The decrease in the film rentals and advertising rate was primarily due to the decrease in the number of blockbuster films released during the second quarter of 2014 compared to the second quarter of 2013. Concession supplies

 

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expense was $23.3 million, or 13.7% of concession revenues, for the second quarter of 2014 compared to $23.5 million, or 14.3% of concession revenues, for the second quarter of 2013. The decrease in the concession supplies rate was primarily due to decreases in inventory procurement costs for certain of our concessions products.

Salaries and wages increased to $51.9 million for the second quarter of 2014 from $47.5 million for the second quarter of 2013. Facility lease expense increased to $58.5 million for the second quarter of 2014 from $51.8 million for the second quarter of 2013. Utilities and other costs increased to $55.1 million for the second quarter of 2014 from $50.7 million for the second quarter of 2013. All of the above-mentioned theatre operating costs for the second quarter of 2014 increased primarily due to the inclusion of the 32 Rave theatres acquired on May 29, 2013 (see Note 4 to the condensed consolidated financial statements).

 

    International. Film rentals and advertising costs were $58.8 million, or 48.6% of admissions revenues, for the second quarter of 2014 compared to $64.7 million, or 50.3% of admissions revenues, for the second quarter of 2013. Concession supplies expense was $12.1 million, or 21.6% of concession revenues, for the second quarter of 2014 compared to $13.5 million, or 20.9% of concession revenues, for the second quarter of 2013. The decrease in the film rentals and advertising rate for the second quarter of 2014 was primarily due to increased virtual print fees that we earn from studios on films played in our international theatres. The increase in the concession supplies rate is partly due to the mix of premium concessions products sold and special promotions.

Salaries and wages decreased to $18.0 million for the second quarter of 2014 from $19.6 million for the second quarter of 2013. Facility lease expense decreased to $22.1 million for the second quarter of 2014 from $24.3 million for the second quarter of 2013. Utilities and other costs decreased to $23.5 million for the second quarter of 2014 from $25.7 million for the second quarter of 2013. All of the above-mentioned theatre operating costs were impacted by the sale of our Mexico theatres during November 2013 and changes in exchange rates in certain countries in which we operate.

General and Administrative Expenses. General and administrative expenses decreased to $38.8 million for the second quarter of 2014 from $39.9 million for the second quarter of 2013. The decrease was primarily due to the impact of the sale of our Mexican subsidiaries in November 2013 as well as the effect of changes in the exchange rates in certain countries in which we operate, partially offset by increased salaries and incentive compensation expense of approximately $1.2 million, increased professional fees of approximately $1.3 million and increased credit card processing fees of $1.1 million.

Depreciation and Amortization. Depreciation and amortization expense was $43.9 million during the second quarter of 2014 compared to $38.7 million during the second quarter of 2013. The increase was primarily due to new theatres, including the 32 Rave theatres acquired on May 29, 2013.

Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used of $0.4 million during the second quarter of 2014 compared to $1.1 million during the second quarter of 2013. 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. Impairment charges for the second quarter of 2014 consisted of U.S. theatre properties, impacting five of our twenty-six reporting units. See Note 12 to our condensed consolidated financial statements.

(Gain) Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $3.3 million during the second quarter of 2014 compared to a gain of $2.8 million during the second quarter of 2013. The loss recorded during the second quarter of 2014 is primarily due to the retirement of certain theatre equipment that was replaced during the period. The gain recorded during the second quarter of 2013 was primarily a result of a gain on sale of a land parcel in the U.S.

Interest Expense. Interest costs incurred, including amortization of debt issue costs, were $28.3 million during the second quarter of 2014 compared to $34.5 million during the second quarter of 2013. The decrease was primarily due to the issuance of the 4.875% Senior Notes on May 24, 2013 that were used to pay off the former 8.625% Senior Notes on June 24, 2013.

Loss on Early Retirement of Debt. We recorded a loss on early retirement of debt of approximately $72.3 million during the second quarter of 2013 as a result of the redemption of Cinemark USA, Inc.’s 8.625% Senior Notes on June 24, 2013. The loss on early retirement of debt included approximately $56.6 million for a make-whole premium paid and the write-off of approximately $8.0 million in unamortized bond discount and $7.6 million in unamortized debt issue costs and the payment of $0.1 million of other fees.

 

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Distributions from NCM. We recorded distributions from NCM of $1.2 million during the second quarter of 2014 compared to $1.7 million during the second quarter of 2013, which were in excess of the carrying value of our Tranche 1 investment. See Note 6 to our condensed consolidated financial statements.

Equity in Income of Affiliates. We recorded equity in income of affiliates of $3.6 million during the second quarter of 2014 compared to $1.7 million during the second quarter of 2013. The equity in income of affiliates recorded during the second quarter of 2014 primarily included income of approximately $2.9 million related to our equity investment in DCIP (see Note 7 to our condensed consolidated financial statements). The equity in income of affiliates recorded during the second quarter of 2013 included income of approximately $1.2 million related to our equity investment in DCIP and income of approximately $0.5 million related to our equity investment in NCM.

Income Taxes. Income tax expense of $24.4 million was recorded for the second quarter of 2014 compared to $9.0 million for the second quarter of 2013. The effective tax rate was approximately 25.2% for the second quarter of 2014 compared to 29.7% for the second quarter of 2013. The effective tax rate for the second quarter of 2014 reflects the impact of items related to our Mexican subsidiaries. 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.

Six months ended June 30, 2014 versus June 30, 2013

Revenues. Total revenues increased $46.8 million to $1,320.2 million for the six months ended June 30, 2014 (“the 2014 period”) from $1,273.4 million for the six months ended June 30, 2013 (“the 2013 period”), representing a 3.7% increase. The table below, presented by reportable operating segment, summarizes our year-over-year revenue performance and certain key performance indicators that impact our revenues.

 

     U.S. Operating Segment     International Operating Segment     Consolidated  
     Six Months Ended     Six Months Ended     Six Months Ended  
     June 30,     June 30,     June 30,  
                   %                   %                   %  
     2014      2013      Change     2014      2013      Change     2014      2013      Change  

Admissions revenues (1)

   $ 617.4       $ 570.5         8.2   $ 219.2       $ 243.4         (9.9 )%    $ 836.6       $ 813.9         2.8

Concession revenues (1)

   $ 316.1       $ 282.2         12.0   $ 103.4       $ 118.9         (13.0 )%    $ 419.5       $ 401.1         4.6

Other revenues (1) (2)

   $ 29.6       $ 24.6         20.3   $ 34.5       $ 33.8         2.1   $ 64.1       $ 58.4         9.8

Total revenues (1) (2)

   $ 963.1       $ 877.3         9.8   $ 357.1       $ 396.1         (9.8 )%    $ 1,320.2       $ 1,273.4         3.7

Attendance (1)

     87.1         81.6         6.7     44.9         49.2         (8.7 )%      132.0         130.8         0.9

 

(1)  Amounts in millions.
(2)  U.S. operating segment revenues include eliminations of intercompany transactions with the international operating segment. See Note 16 of our condensed consolidated financial statements.

 

    U.S. The increase in admissions revenues of $46.9 million was attributable to a 6.7% increase in attendance and a 1.4% increase in average ticket price from $6.99 for the 2013 period to $7.09 for the 2014 period. The increase in concession revenues of $33.9 million was attributable to the 6.7% increase in attendance and a 4.9% increase in concession revenues per patron from $3.46 for the 2013 period to $3.63 for the 2014 period. The increase in average ticket price was primarily due to price increases and the pricing at the acquired Rave theatres. The increase in concession revenues per patron was primarily due to incremental sales and price increases. Our revenues and attendance for the 2014 period also benefited from the inclusion of the 32 Rave theatres acquired on May 29, 2013 (see Note 4 to the condensed consolidated financial statements).

 

   

International. Decreases in revenues and attendance were primarily due to the sale of our Mexico theatres, which occurred during November 2013, partially offset by the impact of new theatres opened in certain of our other countries. Admissions revenues decreased $24.2 million, concession revenues decreased $15.5 million and attendance decreased 8.7%. Admissions revenues were also impacted by a 1.4% decrease in average ticket price

 

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from $4.95 for the 2013 period to $4.88 for the 2014 period. Concession revenues were also impacted by a 5.0% decrease in concession revenues per patron from $2.42 for the 2013 period to $2.30 for the 2014 period. The decrease in average ticket price and concession revenues per patron was primarily due to the unfavorable impact of exchange rates in certain countries in which we operate.

Cost of Operations. The table below summarizes certain of our year-over-year theatre operating costs by reportable operating segment (in millions).

 

     U.S. Operating
Segment
     International Operating
Segment
     Consolidated  
     Six Months Ended
June 30,
     Six Months Ended
June 30,
     Six Months Ended
June 30,
 
     2014      2013      2014      2013      2014      2013  

Film rentals and advertising

   $ 344.4       $ 317.3       $ 105.5       $ 120.1       $ 449.9       $ 437.4   

Concession supplies

     43.5         39.3         21.9         25.7         65.4         65.0   

Salaries and wages

     100.5         87.2         33.8         38.4         134.3         125.6   

Facility lease expense

     117.8         98.7         41.2         47.0         159.0         145.7   

Utilities and other

     108.9         93.4         45.6         51.7         154.5         145.1   

U.S. Film rentals and advertising costs were $344.4 million, or 55.8% of admissions revenues for the 2014 period compared to $317.3 million, or 55.6% of admissions revenues, for the 2013 period. Concession supplies expense was $43.5 million, or 13.8% of concession revenues, for the 2014 period compared to $39.3 million, or 13.9% of concession revenues, for the 2013 period.

Salaries and wages increased to $100.5 million for the 2014 period from $87.2 million for the 2013 period. Facility lease expense increased to $117.8 million for the 2014 period from $98.7 million for the 2013 period. Utilities and other costs increased to $108.9 million for the 2014 period from $93.4 million for the 2013 period. All of the above-mentioned theatre operating costs for the 2014 period increased primarily due to the inclusion of the 32 Rave theatres acquired on May 29, 2013 (see Note 4 to the condensed consolidated financial statements).

 

    International. Film rentals and advertising costs were $105.5 million, or 48.1% of admissions revenues, for the 2014 period compared to $120.1 million, or 49.3% of admissions revenues, for the 2013 period. Concession supplies expense was $21.9 million, or 21.2% of concession revenues, for the 2014 period compared to $25.7 million, or 21.6% of concession revenues, for the 2013 period. The decrease in the film rentals and advertising rate for the 2014 period was primarily due to increased virtual print fees that we earn from studios on films played in our international theatres.

Salaries and wages decreased to $33.8 million for the 2014 period from $38.4 million for the 2013 period. Facility lease expense decreased to $41.2 million for the 2014 period from $47.0 million for the 2013 period. Utilities and other costs decreased to $45.6 million for the 2014 period from $51.7 million for the 2013 period. All of the above-mentioned theatre operating costs were impacted by the sale of our Mexico theatres during November 2013 and changes in exchange rates in certain countries in which we operate.

General and Administrative Expenses. General and administrative expenses increased to $77.5 million for the 2014 period from $77.1 million for the 2013 period. The increase was primarily due to increased salaries and incentive compensation expense of approximately $2.6 million and increased professional fees of approximately $2.7 million, offset by the impact of the sale of our Mexican subsidiaries in November 2013 and the changes in exchange rates in certain countries in which we operate.

Depreciation and Amortization. Depreciation and amortization expense was $86.4 million for the 2014 period compared to $77.8 million for the 2013 period. The increase was primarily due to new theatres, including the 32 Rave theatres acquired on May 29, 2013.

Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used of $0.8 million for the 2014 period compared to $1.9 million for the 2013 period. 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. Impairment charges for the 2014 period consisted of U.S. theatre properties, impacting seven of our twenty-six reporting units. See Note 12 to our condensed consolidated financial statements.

 

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(Gain) Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $6.1 million during the 2014 period compared to a gain of $3.1 million during the 2013 period. The loss recorded during the 2014 period was primarily due to the retirement of certain theatre equipment that was replaced during the period. The gain recorded during the 2013 period was primarily a result of a gain on sale of a land parcel in the U.S.

Interest Expense. Interest costs incurred, including amortization of debt issue costs, were $56.8 million for the 2014 period compared to $67.1 million for the 2013 period. The decrease was primarily due to the issuance of the 4.875% Senior Notes on May 24, 2013 that were used to pay off the former 8.625% Senior Notes on June 24, 2013.

Loss on Early Retirement of Debt. We recorded a loss on early retirement of debt of approximately $72.3 million during the 2013 period as a result of the redemption of Cinemark USA, Inc.’s 8.625% Senior Notes on June 24, 2013. The loss on early retirement of debt included approximately $56.6 million for a make-whole premium paid and the write-off of approximately $8.0 million in unamortized bond discount and $7.6 million in unamortized debt issue costs and the payment of $0.1 million of other fees.

Distributions from NCM. We recorded distributions from NCM of $10.7 million during the 2014 period and $7.8 million during the 2013 period, which were in excess of the carrying value of our Tranche 1 investment. See Note 6 to our condensed consolidated financial statements.

Equity in Income of Affiliates. We recorded equity in income of affiliates of $7.2 million during the 2014 period compared to $4.1 million during the 2013 period. The equity in income of affiliates recorded during the 2014 period primarily included income of approximately $6.2 million related to our equity investment in DCIP (see Note 7 to our condensed consolidated financial statements) and income of approximately $0.4 million related to our equity investment in NCM (see Note 6 to our condensed consolidated financial statements). The equity in income of affiliates recorded during the 2013 period included income of approximately $2.7 million related to our equity investment in DCIP and income of approximately $1.4 million related to our equity investment in NCM.

Income Taxes. Income tax expense of $45.5 million was recorded for the 2014 period compared to $19.8 million for the 2013 period. The effective tax rate was 29.5% for the 2014 period compared to 26.6% for the 2013 period. The effective tax rate for the 2014 period reflects the impact of items related to our Mexican subsidiaries. Income tax provisions for interim (quarterly) periods are based on estimated annual income tax rates and are adjusted for the effects of significant, infrequent or unusual items (i.e. discrete items) occurring during the interim period. As a result, the interim rate may vary significantly from the normalized annual rate.

Liquidity and Capital Resources

Operating Activities

We primarily collect our revenues in cash, mainly through box office receipts and the sale of concessions. In addition, nearly all of our theatres provide the patron a choice of using a credit card, debit card, or advanced-sale type certificates such as a gift card, in place of cash. Because our revenues are received in cash prior to the payment of related expenses, we have an operating “float” and historically have not required traditional working capital financing. Cash provided by operating activities was $159.5 million for the six months ended June 30, 2014 compared to $113.6 million for the six months ended June 30, 2013. The increase in cash provided by operating activities was primarily due to the make-whole premium of $56.6 million paid upon the redemption of the 8.625% Senior Notes, which is reflected in net income for the six months ended June 30, 2013.

Investing Activities

Our investing activities have been principally related to the development and acquisition of theatres. New theatre openings and acquisitions historically have been financed with internally generated cash and by debt financing, including borrowings under our amended senior secured credit facility. Cash used for investing activities was $102.9 million for the six months ended June 30, 2014 compared to $334.4 million for the six months ended June 30, 2013. The decrease in cash used for investing activities was primarily due to the acquisition of theatres in the U.S. for approximately $259.2 million (see Note 4 to the condensed consolidated financial statements) that occurred during the six months ended June 30, 2013.

 

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Capital expenditures for the six months ended June 30, 2014 and 2013 were as follows (in millions):

 

Period

   New
Theatres
     Existing
Theatres
     Total  

Six Months Ended June 30, 2014

   $ 47.0       $ 55.6       $ 102.6  

Six Months Ended June 30, 2013

   $ 46.2       $ 44.2       $ 90.4   

We continue to invest in our U.S. theatre circuit, which consisted of 4,456 screens at June 30, 2014. During the six months ended June 30, 2014, we built two theatres with 22 screens and closed four theatres with 23 screens. At June 30, 2014, we had signed commitments to open six new theatres with 68 screens in domestic markets during the remainder of 2014 and open seven new theatres with 85 screens subsequent to 2014. We estimate the remaining capital expenditures for the development of these 153 domestic screens will be approximately $81 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.

We also continue to invest in our international theatre circuit, which consisted of 1,153 screens at June 30, 2014. During the six months ended June 30, 2014, we built eight new theatres and 50 screens and closed three screens. At June 30, 2014, we had signed commitments to open three new theatres and 28 screens in international markets during the remainder of 2014 and open seven new theatres and 49 screens subsequent to 2014. We estimate the remaining capital expenditures for the development of these 77 international screens will be approximately $58 million. Actual expenditures for continued theatre development and acquisitions are subject to change based upon the availability of attractive opportunities.

We plan to fund capital expenditures for our continued development with cash flow from operations, borrowings under our amended senior secured credit facility, and proceeds from debt issuances, sale leaseback transactions and/or sales of excess real estate.

Financing Activities

Cash used for financing activities was $75.7 million for the six months ended June 30, 2014 compared to cash provided by financing activities of $0.6 million for the six months ended June 30, 2013. Cash provided by financing activities for the six months ended June 30, 2013 included proceeds from the issuance of Cinemark USA, Inc.’s 4.875% Senior Notes, partially offset by the redemption of Cinemark USA, Inc.’s 8.625% Senior Notes (see Note 3 to the condensed consolidated financial statements).

We may from time to time, subject to compliance with our debt instruments, purchase our debt securities on the open market depending upon the availability and prices of such securities. Long-term debt consisted of the following as of June 30, 2014 (in millions):

 

Cinemark, USA, Inc. term loan

   $ 689.5   

Cinemark USA, Inc. 4.875% senior notes due 2023

     530.0   

Cinemark USA, Inc. 5.125% senior notes due 2022

     400.0   

Cinemark USA, Inc. 7.375% senior subordinated notes due 2021

     200.0   

Other

     8.3   
  

 

 

 

Total long-term debt

   $ 1,827.8   

Less current portion

     8.4   
  

 

 

 

Long-term debt, less current portion

   $ 1,819.4   
  

 

 

 

As of June 30, 2014, we had $100.0 million in available borrowing capacity on our revolving credit line.

Contractual Obligations

There have been no material changes in our contractual obligations previously disclosed in “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended December 31, 2013 filed March 7, 2014.

 

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Off-Balance Sheet Arrangements

Other than the operating leases and purchase commitments disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013 filed March 7, 2014, we do not have any off-balance sheet arrangements.

Cinemark USA, Inc. 4.875% Senior Notes

On May 24, 2013, Cinemark USA, Inc. issued $530.0 million aggregate principal amount of 4.875% senior notes due 2023, at par value, (the “4.875% Senior Notes”). Proceeds, after payment of fees, were used to finance a redemption of the 8.625% Senior Notes due 2019 discussed below. Interest on the 4.875% Senior Notes is payable on June 1 and December 1 of each year, beginning December 1, 2013. The 4.875% Senior Notes mature on June 1, 2023.

The 4.875% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or become liable with respect to any of Cinemark USA, Inc.’s or a guarantor’s debt. The 4.875% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior unsecured debt and senior in right of payment to all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior subordinated debt. The 4.875% Senior Notes and the guarantees are effectively subordinated to all of Cinemark USA, Inc.’s and its guarantor’s existing and future secured debt to the extent of the value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.’s amended senior secured credit facility. The 4.875% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of Cinemark USA, Inc.’s subsidiaries that do not guarantee the 4.875% Senior Notes.

The indenture to the 4.875% Senior 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. As of June 30, 2014, Cinemark USA, Inc. could have distributed up to approximately $1,566.8 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 4.875% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture governing the 4.875% Senior Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 4.875% Senior 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 4.875% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of June 30, 2014 was approximately 6.4 to 1.

Prior to June 1, 2018, Cinemark USA, Inc. may redeem all or any part of the 4.875% Senior Notes at its option at 100% of the principal amount plus a make-whole premium plus accrued and unpaid interest on the 4.875% Senior Notes to the date of redemption. After June 1, 2018, Cinemark USA, Inc. may redeem the 4.875% Senior Notes in whole or in part at redemption prices specified in the indenture. In addition, prior to June 1, 2016, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the 4.875% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the indenture.

On June 26, 2013, Cinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the Securities and Exchange Commission, or the Commission, pursuant to which Cinemark USA, Inc. offered to exchange the 4.875% Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended (the “Securities Act”), that do not contain terms restricting the transfer thereof or providing for registration rights. The registration statement was declared effective by the Commission on July 9, 2013. On August 7, 2013, Cinemark USA, Inc. completed the exchange of registered 4.875% Senior Notes for all of the outstanding 4.875% Senior Notes. The registered 4.875% Senior Notes, issued in the exchange, do not have transfer restrictions.

Amended Senior Secured Credit Facility

On December 18, 2012, Cinemark USA, Inc. amended and restated its senior secured credit facility to include a seven year $700.0 million term loan and a five year $100.0 million revolving credit line (the “Amended Senior Secured Credit Facility”). The proceeds from the Amended Senior Secured Credit Facility, combined with a portion of the proceeds from the issuance of the 5.125% Senior Notes discussed below, were used to refinance Cinemark USA, Inc.’s

 

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former senior secured credit facility. The term loan under the Amended Senior Secured Credit Facility matures in December 2019. The revolving credit line matures in December 2017. Quarterly principal payments in the amount of $1.75 million are due on the term loan through September 2019 with the remaining principal of $652.8 million due on December 18, 2019.

Interest on the term loan accrues at Cinemark USA, Inc.’s option at: (A) the base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5, or (2) the federal funds effective rate from time to time plus 0.50%, plus a margin of 2.0% per annum, or (B) a “eurodollar rate” plus a margin of 3.0% per annum. Interest on the revolving credit line accrues, at Cinemark USA, Inc.’s option, at: (A) a base rate equal to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate page 5 and (2) the federal funds effective rate from time to time plus 0.50%, plus a margin that ranges from 1.00% to 1.75% per annum, or (B) a “eurodollar rate” plus a margin that ranges from 2.00% to 2.75% per annum. The margin of the revolving credit line is determined by the consolidated net senior secured leverage ratio as defined in the credit agreement.

Cinemark USA, Inc.’s obligations under the Amended Senior Secured Credit Facility are guaranteed by Cinemark Holdings, Inc. and certain of Cinemark USA, Inc.’s domestic subsidiaries and are secured by mortgages on certain fee and leasehold properties and security interests in substantially all of Cinemark USA, Inc.’s and the guarantors’ personal property, including, without limitation, pledges of all of Cinemark USA, Inc.’s capital stock, all of the capital stock of certain of Cinemark USA, Inc.’s domestic subsidiaries and 65% of the voting stock of certain of its foreign subsidiaries.

The Amended Senior Secured Credit Facility contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on Cinemark USA, Inc.’s ability, and in certain instances, its subsidiaries’ and Cinemark Holdings, Inc.’s ability, to consolidate or merge or liquidate, wind up or dissolve; substantially change the nature of its business; sell, transfer or dispose of assets; create or incur indebtedness; create liens; pay dividends, and repurchase stock; and make capital expenditures and investments. If Cinemark USA, Inc. has borrowings outstanding on the revolving credit line, it is required to satisfy a consolidated net senior secured leverage ratio covenant as determined in accordance with the Amended Senior Secured Credit Facility.

The dividend restriction contained in the Amended Senior Secured Credit Facility prevents the Company and any of its subsidiaries from paying a dividend or otherwise distributing cash to its stockholders unless (1) the Company is not in default, and the distribution would not cause Cinemark USA, Inc. to be in default, under the Amended Senior Secured Credit Facility; and (2) the aggregate amount of certain dividends, distributions, investments, redemptions and capital expenditures made since December 18, 2012, including dividends declared by the board of directors, is less than the sum of (a) the aggregate amount of cash and cash equivalents received by Cinemark Holdings, Inc. or Cinemark USA, Inc. as common equity since December 18, 2012, (b) Cinemark USA, Inc.’s consolidated EBITDA minus 1.75 times its consolidated interest expense, each as defined in the Amended Senior Secured Credit Facility, and (c) certain other defined amounts. As of June 30, 2014, Cinemark USA, Inc. could have distributed up to approximately $1,629.2 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the Amended Senior Secured Credit Facility, subject to its available cash and other borrowing restrictions outlined in the agreement.

At June 30, 2014, there was $689.5 million outstanding under the term loan and no borrowings outstanding under the revolving credit line. Cinemark USA, Inc. had $100.0 million in available borrowing capacity on the revolving credit line. The average interest rate on outstanding term loan borrowings under the Amended Senior Secured Credit Facility at June 30, 2014 was approximately 4.0% per annum.

Cinemark USA, Inc. 5.125% Senior Notes

On December 18, 2012, Cinemark USA, Inc. issued $400.0 million aggregate principal amount of 5.125% senior notes due 2022, at par value (the “5.125% Senior Notes”). A portion of the proceeds were used to refinance a portion of the former senior secured credit facility and to fund the purchase price for the Rave Acquisition (see Note 4 to the condensed consolidated financial statements). Interest on the 5.125% Senior Notes is payable on June 15 and December 15 of each year, beginning June 15, 2013. The 5.125% Senior Notes mature on December 15, 2022.

The 5.125% Senior Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or become liable with respect to any of Cinemark USA, Inc.’s or a guarantor’s debt. The 5.125% Senior Notes and the guarantees are senior unsecured obligations and rank equally in right of payment with all of Cinemark USA, Inc.’s and its guarantor’s existing and future senior unsecured debt and senior in right of payment to all of Cinemark USA, Inc.’s and its guarantor’s existing and future subordinated debt. The 5.125% Senior Notes and the guarantees are effectively subordinated to all of Cinemark USA,

 

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Inc.’s and its guarantor’s existing and future secured debt to the extent of the value of the assets securing such debt, including all borrowings under Cinemark USA, Inc.’s amended senior secured credit facility. The 5.125% Senior Notes and the guarantees are structurally subordinated to all existing and future debt and other liabilities of Cinemark USA, Inc.’s subsidiaries that do not guarantee the 5.125% Senior Notes.

The indenture to the 5.125% Senior 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. As of June 30, 2014, Cinemark USA, Inc. could have distributed up to approximately $1,570.1 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the 5.125% Senior Notes, subject to its available cash and other borrowing restrictions outlined in the indenture. Upon a change of control, as defined in the indenture governing the 5.125% Senior Notes, Cinemark USA, Inc. would be required to make an offer to repurchase the 5.125% Senior 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 5.125% Senior Notes allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1 and our actual ratio as of June 30, 2014 was approximately 6.7 to 1.

Prior to December 15, 2017, Cinemark USA, Inc. may redeem all or any part of the 5.125% Senior Notes at its option at 100% of the principal amount plus a make-whole premium. After December 15, 2017, Cinemark USA, Inc. may redeem the 5.125% Senior Notes in whole or in part at redemption prices described in the 5.125% Senior Notes. In addition, Cinemark USA, Inc. may redeem up to 35% of the aggregate principal amount of the 5.125% Senior Notes from the net proceeds of certain equity offerings at the redemption price set forth in the 5.125% Senior Notes.

On April 16, 2013, Cinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the Commission, pursuant to which Cinemark USA, Inc. offered to exchange the 5.125% Senior Notes for identical notes registered under the Securities Act. The registration statement was declared effective by the Commission on April 25, 2013. On May 23, 2013 Cinemark USA, Inc. completed the exchange of registered 5.125% Senior Notes for all of the outstanding 5.125% Senior Notes. The registered 5.125% Senior Notes, issued in the exchange, do not have transfer restrictions.

Cinemark USA, Inc. 7.375% Senior Subordinated Notes

On June 3, 2011, Cinemark USA, Inc. issued $200.0 million aggregate principal amount of 7.375% senior subordinated notes due 2021, at par value (the “Senior Subordinated Notes”). The proceeds, after payment of fees, were primarily used to fund the prepayment of the remaining $157.2 million of Cinemark USA, Inc.’s unextended portion of term loan debt under its former senior secured credit facility. Interest on the Senior Subordinated Notes is payable on June 15 and December 15 of each year. The Senior Subordinated Notes mature on June 15, 2021.

The Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and several senior subordinated unsecured basis by certain of Cinemark USA, Inc.’s subsidiaries that guarantee, assume or become liable with respect to any of Cinemark USA, Inc.’s or a guarantor’s other debt. The Senior Subordinated Notes and the guarantees are senior subordinated unsecured obligations and rank equally in right of payment with all of Cinemark USA, Inc.’s and a guarantor’s future senior subordinated indebtedness; are subordinate in right of payment to all of Cinemark USA, Inc.’s and a guarantor’s existing and future senior indebtedness, whether secured or unsecured, including Cinemark USA, Inc.’s obligations under its Amended Senior Secured Credit Facility, its 5.125% Senior Notes and 4.875% Senior Notes; and structurally subordinate to all existing and future indebtedness and other liabilities of Cinemark USA, Inc.’s 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. As of June 30, 2014, Cinemark USA, Inc. could have distributed up to approximately $1,560.3 million to its parent company and sole stockholder, Cinemark Holdings, Inc., under the terms of the indenture to the Senior Subordinated Notes, subject to its available cash and other borrowing restrictions outlined in the indenture governing the Senior

 

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Subordinated Notes. Upon a change of control, as defined in the indenture, Cinemark USA, Inc. 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 allows Cinemark USA, Inc. to incur additional indebtedness if it satisfies the coverage ratio specified in the indenture, after giving effect to the incurrence of the additional indebtedness, and in certain other circumstances. The required minimum coverage ratio is 2 to 1, and our actual ratio as of June 30, 2014 was approximately 6.4 to 1.

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.

Cinemark USA, Inc. and its guarantor subsidiaries filed a registration statement with the Commission on July 27, 2011 pursuant to which Cinemark USA, Inc. offered to exchange the Senior Subordinated Notes for substantially similar Senior Subordinated Notes registered under the Securities Act. The registration statement became effective August 4, 2011, and approximately $199.5 million of the notes were exchanged on September 7, 2011. The registered Senior Subordinated Notes, issued in the exchange, do not have transfer restrictions. Approximately $0.5 million of the Senior Subordinated Notes were not exchanged as of June 30, 2014.

Cinemark USA, Inc. 8.625% Senior Notes

On June 29, 2009, Cinemark USA, Inc. issued $470.0 million aggregate principal amount of 8.625% senior notes due 2019 (the “8.625% Senior Notes”), with an original issue discount of $11.5 million, resulting in proceeds of approximately $458.5 million. The proceeds were primarily used to fund the repurchase of the then remaining outstanding $419.4 million aggregate principal amount at maturity of Cinemark, Inc.’s 9.75% senior discount notes.

On June 24, 2013, Cinemark USA, Inc. redeemed its 8.625% Senior Notes at 112.035% of the principal amount, inclusive of a make-whole premium, plus accrued and unpaid interest, utilizing the proceeds from the issuance of the 4.875% Senior Notes discussed above. As a result of the redemption, we wrote-off approximately $8.0 million in unamortized bond discount and $7.6 million in unamortized debt issue costs, paid a make-whole premium of approximately $56.6 million and paid other fees of $0.1 million, all of which are reflected in loss on early retirement of debt during the three and six months ended June 30, 2013.

Covenant Compliance

As of June 30, 2014, we believe we were in full compliance with all agreements, including all related covenants, governing our outstanding debt.

Seasonality

Our revenues have historically been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most successful motion pictures have been released during the summer, extending from May to July, and during the holiday season, extending from early November through year-end. The unexpected emergence of a hit film during other periods can alter this seasonality trend. The timing of such film releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or for the same period in the following year.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have exposure to financial market risks, including changes in interest rates, foreign currency exchange rates and other relevant market prices.

Interest Rate Risk

We are currently party to variable rate debt facilities. An increase or decrease in interest rates would affect our interest expense relating to our variable rate debt facilities. At June 30, 2014, there was an aggregate of approximately $239.5 million of variable rate debt outstanding under these facilities, which excludes $450.0 million of Cinemark USA, Inc.’s term loan debt that is hedged with the Company’s interest rate swap agreements in effect as of June 30, 2014 as discussed below. Based on the interest rates in effect on the variable rate debt outstanding at June 30, 2014, a 100 basis point increase in market interest rates would increase our annual interest expense by approximately $2.4 million.

Our interest rate swap agreements qualify for cash flow hedge accounting. The fair values of the interest rate swaps are recorded on our condensed consolidated balance sheet as an asset or liability with the effective portion of the interest rate swaps’ gains or losses reported as a component of accumulated other comprehensive loss and the ineffective portion reported in earnings.

Below is a summary of our interest rate swap agreements as of June 30, 2014:

 

Nominal

Amount

(in millions)

     Effective Date    Pay Rate     Receive Rate    Expiration Date
$ 175.0       December 2010      1.3975   1-month LIBOR    September 2015
$ 175.0       December 2010      1.4000   1-month LIBOR    September 2015
$ 100.0       November 2011      1.7150   1-month LIBOR    April 2016

 

 

            
$ 450.0              

 

 

            

The table below provides information about our fixed rate and variable rate long-term debt agreements as of June 30, 2014:

 

     Expected Maturity for the Twelve-Month Periods Ending June 30,      Average
Interest
Rate
 
     (in millions)     
     2015      2016      2017      2018      2019      Thereafter      Total      Fair Value     

Fixed rate (1)

   $ 1.4       $ 1.4       $ 1.4       $ 1.4       $ 1.4       $ 1,581.3       $ 1,588.3       $ 1,619.7         5.1

Variable rate

     7.0         7.0         7.0         7.0         7.0         204.5         239.5         240.4         3.2
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total debt

   $ 8.4       $ 8.4       $ 8.4       $ 8.4       $ 8.4       $ 1,785.8       $ 1,827.8       $ 1,860.1      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(1)  Includes $450.0 million of the Cinemark USA, Inc. term loan, which represents the debt hedged with the Company’s interest rate swap agreements in effect as of June 30, 2014 discussed above.

Foreign Currency Exchange Rate Risk

There have been no material changes in foreign currency exchange rate risk previously disclosed in “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K filed March 7, 2014.

Item 4. Controls and Procedures

Evaluation of the Effectiveness of Disclosure Controls and Procedures

As of June 30, 2014, 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 June 30, 2014, 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 SEC’s 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.

 

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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 June 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes from legal proceedings previously reported under “Business – Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed March 7, 2014.

Item 1A. Risk Factors

In addition to the risk factors previously disclosed in “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed March 7, 2014, the Company considers the following a material risk factor:

Failure to protect information systems from cyber attacks could adversely affect our business and results of operations.

We rely extensively on our information systems to process transactions and manage the transactional data. We have adopted industry-accepted security measures and technology to protect the confidential and proprietary information that we maintain on our information systems. However, security measures may be subject to cyber attacks resulting in security breaches and loss of confidential company or customer information, adversely affecting our business and results of operations.

Item 5. Other Information

As required by the indentures governing the Company’s 5.125% Senior Notes, 4.875% Senior Notes and 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 these indentures, the Company has included a condensed consolidating balance sheet and condensed consolidating statements of income, comprehensive income and cash flows for the Company and its subsidiaries. These supplementary schedules separately identify the Company’s restricted subsidiaries and unrestricted subsidiaries as required by the Indentures.

Supplemental Schedules Specified by the Senior Notes Indentures and the Senior Subordinated Notes Indenture:

 

     Page  

Unaudited Condensed Consolidating Balance Sheet Information as of June 30, 2014

     50   

Unaudited Condensed Consolidating Statement of Income Information for the six months ended June 30, 2014

     51   

Unaudited Condensed Consolidating Statement of Comprehensive Income Information for the six months ended June 30, 2014

     52   

Unaudited Condensed Consolidating Statement of Cash Flows Information for the six months ended June  30, 2014

     53   

 

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CINEMARK USA, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

JUNE 30, 2014

(In thousands)

 

     Restricted      Unrestricted              
     Group      Group     Eliminations     Consolidated  

Assets

         

Current assets

         

Cash and cash equivalents

   $ 424,638       $ 153,399      $ —        $ 578,037   

Other current assets

     198,053         (60,337     —          137,716   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     622,691         93,062        —          715,753   

Theatre properties and equipment, net

     1,445,626         —          —          1,445,626