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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 September 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   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

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

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

 

 

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

Indicate by check mark whether the registrant 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 October 31, 2014, 1,500 shares of Class A and 182,648 shares of Class B common stock were 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 September 30, 2014 and December 31, 2013 (unaudited)

     4   
  

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

     5   
  

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

     6   
  

Condensed Consolidated Statements of Cash Flows for the nine months ended September 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

     37   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     49   

Item 4.

  

Controls and Procedures

     50   

PART II.      OTHER INFORMATION

     50   

Item 1.

   Legal Proceedings      50   

Item 1A.

   Risk Factors      50   

Item 5.

   Other Information      50   

Item 6.

   Exhibits      55   

SIGNATURES

     56   

 

2


Table of Contents

Cautionary Statement Regarding Forward-Looking Statements

Certain matters within this Quarterly Report on Form 10-Q 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 for the year ended December 31, 2013 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)

 

     September 30,
2014
    December 31,
2013
 

Assets

    

Current assets

    

Cash and cash equivalents

   $ 546,486      $ 599,894   

Inventories

     11,610        13,735   

Accounts receivable

     76,220        81,519   

Current income tax receivable

     2,482        669   

Current deferred tax asset

     16,397        18,807   

Prepaid expenses and other

     14,408        14,940   

Accounts receivable from parent

     12,242        —     
  

 

 

   

 

 

 

Total current assets

     679,845        729,564   

Theatre properties and equipment

     2,501,782        2,402,796   

Less accumulated depreciation and amortization

     1,073,995        975,606   
  

 

 

   

 

 

 

Theatre properties and equipment, net

     1,427,787        1,427,190   

Other assets

    

Goodwill

     1,277,334        1,288,090   

Intangible assets - net

     350,026        356,144   

Investment in NCM

     182,109        178,853   

Investments in and advances to affiliates

     74,007        59,657   

Long-term deferred tax asset

     947        330   

Deferred charges and other assets - net

     80,381        104,300   
  

 

 

   

 

 

 

Total other assets

     1,964,804        1,987,374   
  

 

 

   

 

 

 

Total assets

   $ 4,072,436      $ 4,144,128   
  

 

 

   

 

 

 

Liabilities and equity

    

Current liabilities

    

Current portion of long-term debt

   $ 8,389      $ 9,856   

Current portion of capital lease obligations

     15,713        13,847   

Current income tax payable

     12,527        22,081   

Current liability for uncertain tax positions

     —          963   

Accounts payable and accrued expenses

     281,831        347,552   
  

 

 

   

 

 

 

Total current liabilities

     318,460        394,299   

Long-term liabilities

    

Long-term debt, less current portion

     1,817,694        1,822,944   

Capital lease obligations, less current portion

     199,609        202,509   

Long-term deferred tax liability

     126,990        148,746   

Long-term liability for uncertain tax positions

     14,764        19,167   

Deferred lease expenses

     45,532        43,552   

Deferred revenue - NCM

     337,114        334,429   

Other long-term liabilities

     69,906        74,201   
  

 

 

   

 

 

 

Total long-term liabilities

     2,611,609        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

     1,218,899        1,206,498   

Retained earnings (deficit)

     5,712        (54,703

Accumulated other comprehensive loss

     (117,384     (81,819
  

 

 

   

 

 

 

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

     1,132,537        1,095,286   

Noncontrolling interests

     9,830        8,995   
  

 

 

   

 

 

 

Total equity

     1,142,367        1,104,281   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,072,436      $ 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
September 30,
    Nine months ended
September 30,
 
     2014     2013     2014     2013  

Revenues

        

Admissions

   $ 402,832      $ 479,631      $ 1,239,472      $ 1,293,528   

Concession

     211,131        242,257        630,571        643,399   

Other

     32,940        35,678        97,003        94,034   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     646,903        757,566        1,967,046        2,030,961   

Cost of operations

        

Film rentals and advertising

     215,565        254,792        665,420        692,219   

Concession supplies

     33,473        38,971        98,862        103,992   

Salaries and wages

     67,903        73,267        202,196        198,821   

Facility lease expense

     80,567        85,085        239,571        230,827   

Utilities and other

     79,477        84,723        233,979        229,835   

General and administrative expenses

     35,205        41,918        112,697        119,038   

Depreciation and amortization

     44,731        42,399        131,108        120,165   

Impairment of long-lived assets

     4,510        131        5,294        2,076   

(Gain) loss on sale of assets and other

     2,590        611        8,719        (2,532
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     564,021        621,897        1,697,846        1,694,441   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     82,882        135,669        269,200        336,520   

Other income (expense)

        

Interest expense

     (28,335     (29,478     (85,101     (96,542

Interest income

     1,543        1,569        3,587        2,966   

Foreign currency exchange loss

     (5,235     (507     (358     (847

Loss on early retirement of debt

     —          —          —          (72,302

Distributions from NCM

     3,481        5,622        14,158        13,418   

Equity in income of affiliates

     10,328        11,733        17,548        15,839   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (18,218     (11,061     (50,166     (137,468
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     64,664        124,608        219,034        199,052   

Less: Income taxes

     25,761        43,572        71,310        63,365   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 38,903      $ 81,036      $ 147,724      $ 135,687   

Less: Net income attributable to noncontrolling interests

     403        726        1,059        1,766   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 38,500      $ 80,310      $ 146,665      $ 133,921   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

5


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CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)

 

    

Three months ended

September 30,

   

Nine months ended

September 30,

 
     2014     2013     2014     2013  

Net income

   $ 38,903      $ 81,036      $ 147,724      $ 135,687   

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 $529, $70, $1,287 and $1,461

     892        115        2,050        2,481   

Unrealized gain (loss) due to fair value adjustments on available-for-sale securities, net of taxes of $1,542, $3,181, $374 and $1,933

     (2,603     (5,256     641        (3,215

Other comprehensive income in equity method investments

     466        1,776        862        3,454   

Foreign currency translation adjustments

     (38,278     (9,518     (39,121     (48,759
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (39,523     (12,883     (35,568     (46,039
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net of tax

     (620     68,153        112,156        89,648   

Comprehensive income attributable to noncontrolling interests

     (392     (621     (1,056     (1,546
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (1,012   $ 67,532      $ 111,100      $ 88,102   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

6


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

     Nine months ended September 30,  
     2014     2013  

Operating activities

    

Net income

   $ 147,724      $ 135,687   

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

    

Depreciation

     129,183        117,195   

Amortization of intangible and other assets and favorable/unfavorable leases

     1,925        2,970   

Amortization of long-term prepaid rents

     1,785        2,104   

Amortization of debt issue costs

     3,934        4,165   

Amortization of deferred revenues, deferred lease incentives and other

     (10,198     (8,478

Amortization of bond discount

     —          482   

Impairment of long-lived assets

     5,294        2,076   

Share based awards compensation expense

     8,832        9,743   

(Gain) loss on sale of assets and other

     8,719        (2,532

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

     —          15,688   

Deferred lease expenses

     2,016        4,038   

Deferred income tax expenses

     (20,976     (34,087

Equity in income of affiliates

     (17,548     (15,839

Interest paid on redemption of senior notes

     —          (8,054

Distributions from equity investees

     11,374        7,645   

Changes in assets and liabilities and other

     (49,397     (54,438
  

 

 

   

 

 

 

Net cash provided by operating activities

     222,667        178,365   

Investing activities

    

Additions to theatre properties and equipment

     (156,168     (159,488

Proceeds from sale of theatre properties and equipment and other

     1,973        29,880   

Acquisitions of theatres in U.S.

     —          (259,247

Investment in joint ventures and other

     (1,925     (5,080
  

 

 

   

 

 

 

Net cash used for investing activities

     (156,120     (393,935

Financing activities

    

Dividends paid to parent

     (86,250     (76,575

Payroll taxes paid as a result of restricted stock withholdings

     (9,776     (3,464

Issuance of senior notes

     —          530,000   

Other short-term borrowings

     —          1,473   

Redemption of senior notes

     —          (461,946

Repayments of long-term debt

     (6,702     (7,060

Payment of debt issue costs

     —          (9,328

Payments on capital leases

     (10,293     (8,480

Purchase of noncontrolling interest share of Adamark S.A., a Brazilian subsidiary

     —          (5,621

Other

     3,349        2,822   
  

 

 

   

 

 

 

Net cash used for financing activities

     (109,672     (38,179

Effect of exchange rate changes on cash and cash equivalents

     (10,283     (8,745
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (53,408     (262,494

Cash and cash equivalents:

    

Beginning of period

     599,894        742,095   
  

 

 

   

 

 

 

End of period

   $ 546,486      $ 479,601   
  

 

 

   

 

 

 

Supplemental information (see Note 15)

    

 

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

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 nine months ended September 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 nine months ended September 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. The Company does not expect the adoption of ASU 2014-08 to have a significant impact on its 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. 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, and interim periods within those years. Early application is not permitted. The Company is currently evaluating the impact of ASU 2014-09 on its condensed consolidated financial statements.

In June 2014, the FASB issued Accounting Standards Update 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

 

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Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

(“ASU 2014-12”). The update requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in ASU 2014-12 are effective for annual reporting periods beginning after December 15, 2015, and interim periods within those years. Early application is permitted. The Company does not expect the adoption of ASU 2014-12 to have any impact on its condensed consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). The update provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in ASU 2014-15 are effective for annual reporting periods ending after December 15, 2016, and interim periods within those years. Early application is permitted. The Company does not expect the adoption of ASU 2014-15 to have a significant impact on its condensed consolidated financial statements.

 

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 $470,000 of 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 nine months ended September 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 $1,826,083 and $1,832,800 as of September 30, 2014 and December 31, 2013, respectively. The fair value of the Company’s long-term debt was $1,799,242 and $1,815,879 as of September 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).

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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.

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

 

     Nine Months Ended  
     September 30, 2013  

Total revenues

   $ 2,125,525   

Income before income taxes

   $ 208,629   

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 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.

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 Commission 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.

 

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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 nine months ended September 30, 2014 and 2013:

 

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

Balance at January 1, 2014

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

Share based awards compensation expense

     8,832        —          8,832   

Tax benefit related to restricted stock and restricted stock unit vesting

     3,569        —          3,569   

Dividends paid to parent

     (86,250     —          (86,250

Dividends paid to noncontrolling interests

     —          (221     (221

Net income

     146,665        1,059        147,724   

Fair value adjustments on interest rate swap agreements designated as hedges, net of settlements, net of taxes of $1,287

     2,050        —          2,050   

Fair value adjustments on available-for-sale securities, net of taxes of $374

     641        —          641   

Other comprehensive income in equity method investments

     862        —          862   

Foreign currency translation adjustments

     (39,118     (3     (39,121
  

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

   $ 1,132,537      $ 9,830      $ 1,142,367   
  

 

 

   

 

 

   

 

 

 

 

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

Balance at January 1, 2013

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

Purchase of noncontrolling interest’s share of Adamark S.A., a Brazilian subsidiary

     (4,618     (1,003     (5,621

Share based awards compensation expense

     9,743        —          9,743   

Tax benefit related to restricted stock and restricted stock unit vesting

     3,529        —          3,529   

Dividends paid to parent

     (76,575     —          (76,575

Dividends paid to noncontrolling interests

     —          (665     (665

Net income

     133,921        1,766        135,687   

Fair value adjustments on interest rate swap agreements designated as hedges, net of taxes of $1,461

     2,481        —          2,481   

Fair value adjustments on available-for-sale securities, net of taxes of $1,933

     (3,215     —          (3,215

Other comprehensive income in equity method investees

     3,454        —          3,454   

Foreign currency translation adjustments

     (48,539     (220     (48,759
  

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

   $ 1,105,474      $ 10,797      $ 1,116,271   
  

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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 Annual Report on Form 10-K for the year ended December 31, 2013, 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. IPO, 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.

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

 

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

     —          —          —          —          (6,911     —          6,911   

Receipt of excess cash distributions

     (8,989     —          (10,648     —          —          —          19,637   

Receipt under tax receivable agreement

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

Equity in earnings

     5,746        —          —          (5,746     —          —          —     

Equity in other comprehensive income

     668        —          —          —          —          (668     —     

Amortization of deferred revenue

     —          5,531        —          —          (5,531     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 182,109      $ (337,114   $ (14,158   $ (5,746   $ (12,442   $ (668   $ 32,443   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 $8,478.

During the three months ended September 30, 2014 and 2013, the Company recorded equity in earnings of approximately $5,389 and $7,122, respectively. During the nine months ended September 30, 2014 and 2013, the Company recorded equity in earnings of approximately $5,746 and $8,524, 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.

 

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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 September 30, 2014, the Company owned 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 had entered into an agreement to acquire Screenvision, LLC for approximately $375,000, consisting of cash and NCM, Inc. common stock. The transaction is subject to regulatory approval and other customary closing conditions. If NCM, Inc. does not receive this approval or if the closing conditions in the agreement cannot be satisfied, in certain circumstances NCM Inc. may be required to pay a termination fee of approximately $28,800. On November 3, 2014, the Department of Justice filed an antitrust lawsuit seeking to stop the planned transaction.

Below is summary financial information for NCM for the three and nine months ended September 25, 2014 and September 26, 2013.

 

     Three Months Ended      Nine Months Ended  
     September 25, 2014      September 26, 2013      September 25, 2014      September 26, 2013  

Gross revenues

   $ 100,738       $ 135,022       $ 270,911       $ 340,051   

Operating income

   $ 42,858       $ 67,309       $ 97,756       $ 146,872   

Net earnings

   $ 26,909       $ 51,794       $ 50,612       $ 98,572   

 

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 September 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 September 30, 2014 and 2013, the Company recorded equity in earnings of approximately $4,791 and $4,613, respectively. During the nine months ended September 30, 2014 and 2013, the Company recorded equity in earnings of $10,969 and $7,315, respectively.

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

 

     Investment in
DCIP
 

Balance as of January 1, 2014

   $ 38,033   

Cash contributions

     1,925   

Equity in income

     10,969   

Equity in other comprehensive loss

     194   
  

 

 

 

Balance as of September 30, 2014

   $ 51,121   
  

 

 

 

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

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

outlined in the agreements. Certain of the other rent payments are subject to either a monthly or an annual maximum. As of September 30, 2014, the Company had 3,666 digital projection systems being leased under the master equipment lease agreement with Kasima. The Company paid equipment lease expense of approximately $3,005 and $2,848 during the nine months ended September 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 nine months ended September 30, 2014 and 2013.

 

     Three Months Ended      Nine Months Ended  
     September 30, 2014      September 30, 2013      September 30, 2014      September 30, 2013  

Revenues

   $ 41,600       $ 46,321       $ 127,684       $ 134,398   

Operating income

   $ 24,913       $ 29,748       $ 75,619       $ 85,274   

Net income

   $ 17,759       $ 16,530       $ 42,352       $ 30,793   

 

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.

As of September 30, 2014, the estimated fair value of the Company’s investment in RealD was $11,458, which is based on the closing price of RealD’s common stock on September 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 nine months ended September 30, 2014, the Company recorded an unrealized holding gain of approximately $1,015, 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 nine months ended September 30, 2014:

 

     Investment in  
     RealD  

Balance as of January 1, 2014

   $ 10,443   

Unrealized holding gain

     1,015   
  

 

 

 

Balance as of September 30, 2014

   $ 11,458   
  

 

 

 

The changes in accumulated other comprehensive loss, net of taxes, related to the Company’s investment in RealD for the nine months ended September 30, 2014 and 2013 were as follows:

 

     2014      2013  

Beginning balances – January 1

   $ 457       $ 2,499   

Other comprehensive income (loss), net of taxes of $374 and $1,933

     641         (3,215
  

 

 

    

 

 

 

Ending balances – September 30

   $ 1,098       $ (716
  

 

 

    

 

 

 

 

9. Share Based Awards

Stock Options – During the nine months ended September 30, 2014, 14,584 stock options 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 September 30, 2014, there were no stock options outstanding.

Restricted Stock – During the nine months ended September 30, 2014, Cinemark Holdings, Inc. granted 268,257 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 date of grant, which

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

ranged from $28.54 to $35.49 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 ratably over three years based on continued service and the remaining restricted stock granted to the Company’s employees vests ratably over four years based on continued service. The recipients of restricted stock are entitled to receive dividends and to vote their respective shares, however, the sale and transfer of the restricted shares is prohibited during the restriction period.

Below is a summary of restricted stock activity for the nine months ended September 30, 2014:

 

     Shares of     Weighted
Average
 
     Restricted     Grant Date  
     Stock     Fair Value  

Outstanding at January 1, 2014

     1,260,913      $ 21.85   

Granted

     268,257      $ 28.90   

Vested

     (619,307   $ 20.50   

Forfeited

     (17,388   $ 21.42   
  

 

 

   

Outstanding at September 30, 2014

     892,475      $ 24.91   
  

 

 

   

Unvested restricted stock at September 30, 2014

     892,475      $ 24.91   
  

 

 

   

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

The Company recorded compensation expense of $6,532 and $7,220 and Cinemark Holdings, Inc. recorded an additional $732 and $603 related to restricted stock awards during the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, the remaining unrecognized compensation expense related to restricted stock awards was $14,589, $14,072 of which will be recognized by the Company and an additional $517 of which will be recognized by Cinemark Holdings, Inc. and the weighted average period over which this remaining compensation expense will be recognized is approximately two years.

Restricted Stock Units – During the nine months ended September 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.

 

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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 table summarizing the potential number of shares that could vest under restricted stock unit awards granted during the nine months ended September 30, 2014 at each of the three target levels of financial performance (excluding forfeiture assumptions):

 

     Number of
Shares
Vesting
     Value at
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 $2,300 and $2,523 related to restricted stock unit awards during the nine months ended September 30, 2014 and 2013, respectively.

During the nine months ended September 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. The fair value of the restricted stock unit awards that vested during the nine months ended September 30, 2014 was approximately $11,312. The Company recognized a tax benefit of approximately $4,751 during the nine months ended September 30, 2014 related to these vested awards.

As of September 30, 2014, the remaining unrecognized compensation expense related to the outstanding restricted stock unit awards was $5,383. The weighted average period over which this remaining compensation expense will be recognized is approximately two years. As of September 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.

 

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.

 

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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 the Company’s current interest rate swap agreements designated as cash flow hedges as of September 30, 2014:

 

   

Nominal
Amount

  

Effective

Date

   Pay Rate    

Receive Rate

  

Expiration

Date

   Current
Liability (1)
     Long-Term
Liability (2)
     Estimated
Total Fair Value at
September 30, 2014
 
  $175,000    December 2010      1.3975   1-Month LIBOR    September 2015    $ 1,929       $ —         $ 1,929   
  $175,000    December 2010      1.4000   1-Month LIBOR    September 2015      1,953         —           1,953   
  $100,000    November 2011      1.7150   1-Month LIBOR    April 2016      1,436         520         1,956   
 

 

             

 

 

    

 

 

    

 

 

 
  $450,000               $ 5,318       $ 520       $ 5,838   
 

 

             

 

 

    

 

 

    

 

 

 

 

(1)  Included in accounts payable and accrued expenses on the condensed consolidated balance sheet as of September 30, 2014.
(2)  Included in other long-term liabilities on the condensed consolidated balance sheet as of September 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 nine months ended September 30, 2014 and 2013 were as follows:

 

Three Months Ended September 30,    2014     2013  

Beginning balances – July 1

   $ (4,558   $ (6,501 )
  

 

 

   

 

 

 

Other comprehensive loss before reclassifications, net of taxes of $(42) and $(476)

     (70     (806

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of taxes of $571 and $546

     962        921  
  

 

 

   

 

 

 

Net other comprehensive income

     892        115  
  

 

 

   

 

 

 

Ending balances- September 30

   $ (3,666   $ (6,386
  

 

 

   

 

 

 
Nine Months Ended September 30,    2014     2013  

Beginning balances – January 1

   $ (5,716   $ (8,867
  

 

 

   

 

 

 

Other comprehensive loss before reclassifications, net of taxes of $(394) and $(156)

     (787     (249

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of taxes of $1,681 and $1,617

     2,837        2,730   
  

 

 

   

 

 

 

Net other comprehensive income

     2,050        2,481   
  

 

 

   

 

 

 

Ending balances – September 30

   $ (3,666   $ (6,386
  

 

 

   

 

 

 

 

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

     —           (10,756     (10,756
  

 

 

    

 

 

   

 

 

 

Balance at September 30, 2014 (1)

   $ 1,150,471       $ 126,863      $ 1,277,334   
  

 

 

    

 

 

   

 

 

 

 

(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

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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 nine months ended September 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,
2014
    Amortization     Other (1)     Balance at
September 30,
2014
 

Intangible assets with finite lives:

        

Gross carrying amount

   $ 101,617      $ —        $ (1,309   $ 100,308   

Accumulated amortization

     (46,297     (4,498     (141     (50,936
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net intangible assets with finite lives

     55,320        (4,498     (1,450     49,372   

Intangible assets with indefinite lives:

        

Tradename

     300,824        —          (170     300,654   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total intangible assets — net

   $ 356,144      $ (4,498   $ (1,620   $ 350,026   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Consists primarily of foreign currency translation adjustments.

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

 

For the three months ended December 31, 2014

   $ 1,731   

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

     4,240   

Thereafter

     26,218   
  

 

 

 

Total

   $ 49,372   
  

 

 

 

 

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

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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 nine months ended September 30, 2014 and 2013. As of September 30, 2014, the estimated aggregate fair value of the long-lived assets impaired during the nine months ended September 30, 2014 was approximately $4,297.

The long-lived asset impairment charges recorded during each of the periods presented are specific to theatres that were directly and individually impacted by increased competition, adverse changes in market demographics or adverse changes in the development or the conditions of the areas surrounding the theatre.

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2014      2013      2014      2013  

United States theatre properties

   $ 4,510       $ 131       $ 5,294       $ 901   

International theatre properties

     —           —           —           1,175   
  

 

 

    

 

 

    

 

 

    

 

 

 

Impairment of long-lived assets

   $ 4,510       $ 131       $ 5,294       $ 2,076   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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.

Below is a summary of assets and liabilities measured at fair value on a recurring basis by the Company under FASB ASC Topic 820 as of September 30, 2014:

 

     Carrying     Fair Value  

Description

   Value     Level 1      Level 2      Level 3  

Interest rate swap liabilities – current (see Note 10)

   $ (5,318   $ —         $ —         $ (5,318

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

   $ (520   $ —         $ —         $ (520

Investment in RealD (see Note 8)

   $ 11,458      $ 11,458       $ —         $ —     

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       $ —         $ —     

 

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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 reconciliation of the beginning and ending balance for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2014 and 2013:

 

Three Months Ended September 30,    2014     2013  

Beginning balances - July 1

   $ 7,259      $ 10,435   

Total loss included in accumulated other comprehensive loss

     112        1,282   

Settlements

     (1,533     (1,467
  

 

 

   

 

 

 

Ending balances – September 30

   $ 5,838      $ 10,250   
  

 

 

   

 

 

 

 

Nine Months Ended September 30,    2014     2013  

Beginning balances - January 1

   $ 9,176      $ 14,192   

Total loss included in accumulated other comprehensive loss

     1,180        405   

Settlements

     (4,518     (4,347
  

 

 

   

 

 

 

Ending balances – September 30

   $ 5,838      $ 10,250   
  

 

 

   

 

 

 

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 for disclosure purposes (see Note 3). There were no changes in valuation techniques during the period.

The Company conducts a review of fair value hierarchy classifications when estimating fair values on a quarterly basis. There were no transfers in or out of Level 1, Level 2 or Level 3 during the nine months ended September 30, 2014.

 

14. Foreign Currency Translation

The accumulated other comprehensive loss account in stockholder’s equity of $117,384 and $81,819 at September 30, 2014 and December 31, 2013, respectively, includes cumulative foreign currency adjustments of $118,065 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 September 30, 2014 financial statements of certain of the Company’s international subsidiaries:

 

     Exchange Rate as of      Total Assets at      Other
Comprehensive
Loss For The
Nine Months Ended
 

Country

   September 30, 2014      December 31, 2013      September 30, 2014      September 30, 2014  

Brazil

     2.44         2.36       $ 333,997       $ (8,428

Argentina

     8.49         6.52       $ 102,627         (19,724

Chile

     602.23         525.55       $ 50,326         (5,301

All other

              (5,665
           

 

 

 
            $ (39,118
           

 

 

 

 

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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:

 

     Nine Months Ended  
     September 30,  
     2014     2013  

Cash paid for interest

   $ 65,487      $ 74,071   

Cash paid for income taxes, net of refunds received

   $ 99,636      $ 86,333   

Noncash investing and financing activities:

    

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

   $ (934   $ 5,937   

Theatre properties acquired under capital lease

   $ 10,419      $ 66,545   

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

   $ 8,216      $ 98,797   

 

(1)  Additions to theatre properties and equipment included in accounts payable as of September 30, 2014 and December 31, 2013 were $11,076 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
September 30,
    Nine Months Ended
September 30,
 
     2014     2013     2014     2013  

Revenues

        

U.S.

   $ 463,854      $ 529,426      $ 1,433,259      $ 1,412,898   

International

     186,428        231,771        543,501        627,843   

Eliminations

     (3,379     (3,631     (9,714     (9,780
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 646,903      $ 757,566      $ 1,967,046      $ 2,030,961   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

        

U.S. (1)

   $ 99,915      $ 133,076      $ 315,393      $ 342,658   

International

     42,220        57,370        125,719        142,874   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Adjusted EBITDA

   $ 142,135      $ 190,446      $ 441,112      $ 485,532   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures

        

U.S.

   $ 36,325      $ 35,746      $ 97,120      $ 71,533   

International

     17,280        33,354        59,048        87,955   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total capital expenditures

   $ 53,605      $ 69,100      $ 156,168      $ 159,488   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Distributions from NCM are reported entirely within the U.S. operating segment.

 

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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     Nine Months Ended  
   September 30,     September 30,  
     2014     2013     2014     2013  

Net income

   $ 38,903      $ 81,036      $ 147,724      $ 135,687   

Add (deduct):

        

Income taxes

     25,761        43,572        71,310        63,365   

Interest expense (1)

     28,335        29,478        85,101        96,542   

Loss on early retirement of debt

     —          —          —          72,302   

Other income (2)

     (6,636     (12,795     (20,777     (17,958

Depreciation and amortization

     44,731        42,399        131,108        120,165   

Impairment of long-lived assets

     4,510        131        5,294        2,076   

(Gain) loss on sale of assets and other

     2,590        611        8,719        (2,532

Deferred lease expenses

     168        1,935        2,016        4,038   

Amortization of long-term prepaid rents

     1,000        725        1,785        2,104   

Share based awards compensation expense

     2,773        3,354        8,832        9,743   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 142,135      $ 190,446      $ 441,112      $ 485,532   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Includes amortization of debt issue costs.
(2)  Includes interest income, foreign currency exchange loss and equity in income of affiliates and excludes distributions from NCM.

Financial Information About Geographic Areas

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

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  

Revenues

   2014     2013     2014     2013  

U.S.

   $ 463,854      $ 529,426      $ 1,433,259      $ 1,412,898   

Brazil

     83,521        87,028        256,421        251,831   

Other international countries

     102,907        144,743        287,080        376,012   

Eliminations

     (3,379     (3,631     (9,714     (9,780
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 646,903      $ 757,566      $ 1,967,046      $ 2,030,961   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Theatre Properties and Equipment-net

   September 30,
2014
     December 31,
2013
 

U.S.

   $ 1,065,964       $ 1,062,471   

Brazil

     211,072         201,492   

Other international countries

     150,751         163,227   
  

 

 

    

 

 

 

Total

   $ 1,427,787       $ 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 the Cinemark Holdings, Inc.’s Chairman of the Board and directly and indirectly owns approximately 9% 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 $429 and $444 of management fee revenues during the nine months ended September 30, 2014 and 2013, respectively, related to these theatres. All such amounts are included in the Company’s condensed consolidated financial statements with the intercompany amounts eliminated in consolidation.

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In thousands, except share and per share data

 

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 nine months ended September 30, 2014 and 2013, the Company paid total rent of approximately $17,316 and $17,543, 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 September 30, 2014 and December 31, 2013 was $12,242 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 September 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., 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 September 30, 2014, condensed consolidating statements of income information for the three and nine months ended September 30, 2013 and 2014, condensed consolidating statements of comprehensive income (loss) information for the three and nine months ended September 30, 2013 and 2014 and condensed consolidating statements of cash flows information for the nine months ended September 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION

DECEMBER 31, 2013

 

     Parent
Company
     Subsidiary
Guarantors
     Subsidiary
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 and/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

SEPTEMBER 30, 2014

 

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

Assets

             

Current assets

             

Cash and cash equivalents

   $ 55,802       $ 70,139       $ 420,545       $ —        $ 546,486   

Other current assets

     141,008         16,612         66,781         (103,284     121,117   

Accounts receivable from parent and/or subsidiaries

     327,507         —           —           (315,265     12,242   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     524,317         86,751         487,326         (418,549     679,845   

Theatre properties and equipment - net

     470,604         576,768         380,415         —          1,427,787   

Investment in subsidiaries

     1,255,139         408,600         —           (1,663,739     —     

Other assets

     1,415,172         138,333         411,070         229        1,964,804   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,665,232       $ 1,210,452       $ 1,278,811       $ (2,082,059   $ 4,072,436   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and equity

             

Current liabilities

             

Current portion of long-term debt

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

Current portion of capital lease obligations

     4,811         8,811         2,091         —          15,713   

Accounts payable and accrued expenses

     233,890         61,911         95,461         (96,904     294,358   

Accounts payable to parent and/or subsidiaries

     —           142,134         173,131         (315,265     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     245,701         212,856         272,072         (412,169     318,460   

Long-term liabilities

             

Long-term debt, less current portion

     1,810,750         1,868         6,944         (1,868     1,817,694   

Capital lease obligations, less current portion

     95,989         77,832         25,788         —          199,609   

Other long-term liabilities and deferrals

     380,255         84,629         133,705         (4,283     594,306   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total long-term liabilities

     2,286,994         164,329         166,437         (6,151     2,611,609   

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

     1,082,994         375,899         820,253         (1,196,152     1,082,994   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Cinemark USA, Inc. stockholder’s equity

     1,132,537         833,267         830,472         (1,663,739     1,132,537   

Noncontrolling interests

     —              9,830           9,830   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,132,537         833,267         840,302         (1,663,739     1,142,367   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 3,665,232       $ 1,210,452       $ 1,278,811       $ (2,082,059   $ 4,072,436   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

26


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

THREE MONTHS ENDED SEPTEMBER 30, 2013

 

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

Revenues

   $ 232,878      $ 295,742      $ 238,986      $ (10,040   $ 757,566   

Cost of operations

          

Theatre operating expenses

     182,367        196,579        167,932        (10,040     536,838   

General and administrative expenses

     5,554        20,292        16,072        —          41,918   

Depreciation and amortization

     11,927        15,742        14,730        —          42,399   

Impairment of long-lived assets

     40        91        —          —          131   

(Gain) loss on sale of assets and other

     (114     516        209        —          611   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     199,774        233,220        198,943        (10,040     621,897   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     33,104        62,522        40,043        —          135,669   

Other income (expense)

          

Interest expense

     (25,838     (2,461     (1,179     —          (29,478

Distributions from NCM

     —          —          5,622        —          5,622   

Equity in income of affiliates

     74,472        22,212        11,734        (96,685     11,733   

Other income (expense)

     52        (15     1,025        —          1,062   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     48,686        19,736        17,202        (96,685     (11,061
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     81,790        82,258        57,245        (96,685     124,608   

Less: Income taxes

     1,480        22,819        19,273        —          43,572   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     80,310        59,439        37,972        (96,685     81,036   

Less: Net income attributable to noncontrolling interests

     —          —          726        —          726   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 80,310      $ 59,439      $ 37,246      $ (96,685   $ 80,310   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

THREE MONTHS ENDED SEPTEMBER 30, 2014

 

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

Revenues

   $ 202,055      $ 261,160      $ 192,442      $ (8,754   $ 646,903   

Cost of operations

          

Theatre operating expenses

     165,537        181,163        139,039        (8,754     476,985   

General and administrative expenses

     4,593        16,656        13,956        —          35,205   

Depreciation and amortization

     12,803        16,989        14,939        —          44,731   

Impairment of long-lived assets

     4,510        —          —          —          4,510   

Loss on sale of assets and other

     1,772        565        253        —          2,590   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     189,215        215,373        168,187        (8,754     564,021   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     12,840        45,787        24,255        —          82,882   

Other income (expense)

          

Interest expense

     (25,337     (2,256     (754     12        (28,335

Distributions from NCM

     —          —          3,481        —          3,481   

Equity in income of affiliates

     50,433        14,196        10,066        (64,367     10,328   

Other income (expense)

     32        —          (3,712     (12     (3,692
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     25,128        11,940        9,081        (64,367     (18,218
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     37,968        57,727        33,336        (64,367     64,664   

Less: Income taxes

     (532     16,357        9,936        —          25,761   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     38,500        41,370        23,400        (64,367     38,903   

Less: Net income attributable to noncontrolling interests

     —          —          403        —          403   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

   $ 38,500      $ 41,370      $ 22,997      $ (64,367   $ 38,500   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2013

 

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

Revenues

  $ 587,621      $ 824,399      $ 647,885      $ (28,944   $ 2,030,961   

Cost of operations

         

Theatre operating expenses

    465,004        553,536        466,098        (28,944     1,455,694   

General and administrative expenses

    17,495        56,224        45,319        —          119,038   

Depreciation and amortization

    31,471        46,995        41,699        —          120,165   

Impairment of long-lived assets

    648        253        1,175        —          2,076   

(Gain) loss on sale of assets and other

    (3,505     1,178        (205     —          (2,532
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

    511,113        658,186        554,086        (28,944     1,694,441   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    76,508        166,213        93,799        —          336,520   

Other income (expense)

         

Interest expense

    (85,308     (7,443     (3,791     —          (96,542

Loss on early retirement of debt

    (72,302     —          —          —          (72,302

Distributions from NCM

    125        —          13,293        —          13,418   

Equity in income of affiliates

    186,157        54,861        15,840        (241,019     15,839   

Other income (expense)

    94        (10     2,035        —          2,119   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

    28,766        47,408        27,377        (241,019     (137,468
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    105,274        213,621        121,176        (241,019     199,052   

Less: Income taxes

    (28,647     60,444        31,568        —          63,365   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    133,921        153,177        89,608        (241,019     135,687   

Less: Net income attributable to noncontrolling interests

    —          —          1,766        —          1,766   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

  $ 133,921      $ 153,177      $ 87,842      $ (241,019   $ 133,921   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2014

 

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

Revenues

  $ 625,965      $ 810,980      $ 561,706      $ (31,605   $ 1,967,046   

Cost of operations

         

Theatre operating expenses

    514,864        554,703        402,066        (31,605     1,440,028   

General and administrative expenses

    15,236        56,844        40,617        —          112,697   

Depreciation and amortization

    37,395        50,410        43,303        —          131,108   

Impairment of long-lived assets

    5,199        95        —          —          5,294   

Loss on sale of assets and other

    5,394        2,108        1,217        —          8,719   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

    578,088        664,160        487,203        (31,605     1,697,846   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    47,877        146,820        74,503        —          269,200   

Other income (expense)

         

Interest expense

    (75,641     (6,924     (2,548     12        (85,101

Distributions from NCM

    2,207        —          11,951        —          14,158   

Equity in income of affiliates

    170,339        52,094        17,289        (222,174     17,548   

Other income (expense)

    57        (1     3,185        (12     3,229   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

    96,962        45,169        29,877        (222,174     (50,166
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    144,839        191,989        104,380        (222,174     219,034   

Less: Income taxes

    (1,826     52,041        21,095        —          71,310   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    146,665        139,948        83,285        (222,174     147,724   

Less: Net income attributable to noncontrolling interests

    —          —          1,059        —          1,059   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Cinemark USA, Inc.

  $ 146,665      $ 139,948      $ 82,226      $ (222,174   $ 146,665   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 SEPTEMBER 30, 2013

 

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

Net income

  $ 80,310      $ 59,439      $ 37,972      $ (96,685   $ 81,036   

Other comprehensive income (loss), net of tax

         

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of taxes of $70

    115        —          —          —          115   

Unrealized loss due to fair value adjustments on available-for-sale securities, net of taxes of $3,181

    (5,256     —          —          —          (5,256

Other comprehensive income in equity method investments

    1,776        —          1,776        (1,776     1,776   

Foreign currency translation adjustments

    (9,413     —          (9,518     9,413        (9,518
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

    (12,778     —          (7,742     7,637        (12,883
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

  $ 67,532      $ 59,439      $ 30,230      $ (89,048   $ 68,153   

Comprehensive income attributable to noncontrolling interests

    —          —          (621     —          (621
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

  $ 67,532      $ 59,439      $ 29,609      $ (89,048   $ 67,532   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


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 SEPTEMBER 30, 2014

 

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

Net income

  $ 38,500      $ 41,370      $ 23,400      $ (64,367   $ 38,903   

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 $529

    892        —          —          —          892   

Unrealized loss due to fair value adjustments on available-for-sale securities, net of taxes of $1,542

    (2,603     —          —          —          (2,603

Other comprehensive income of equity method investments

    466        —          459        (459     466   

Foreign currency translation adjustments

    (38,267     —          (38,278     38,267        (38,278
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

    (39,512     —          (37,819     37,808        (39,523
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net of tax

  $ (1,012   $ 41,370      $ (14,419   $ (26,559   $ (620

Comprehensive income attributable to noncontrolling interests

    —          —          (392     —          (392
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (1,012   $ 41,370      $ (14,811   $ (26,559   $ (1,012
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2013

 

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

Net income

   $ 133,921      $ 153,177       $ 89,608      $ (241,019   $ 135,687   

Other comprehensive income (loss), net of tax

           

Unrealized gain due to fair value adjustments on interest rate swap agreements, net of taxes of $1,461

     2,481        —           —          —          2,481   

Unrealized loss due to fair value adjustments on available-for-sale securities, net of taxes of $1,933

     (3,215     —           —          —          (3,215

Other comprehensive income in equity method investments

     3,454        —           3,454        (3,454     3,454   

Foreign currency translation adjustments

     (48,539     —           (48,759     48,539        (48,759
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (45,819     —           (45,305     45,085        (46,039
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 88,102      $ 153,177       $ 44,303      $ (195,934   $ 89,648   

Comprehensive income attributable to noncontrolling interests

     —          —           (1,546     —          (1,546
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 88,102      $ 153,177       $ 42,757      $ (195,934   $ 88,102   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2014

 

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

Net income

   $ 146,665      $ 139,948       $ 83,285      $ (222,174   $ 147,724   

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 $1,287

     2,050        —           —          —          2,050   

Unrealized gain due to fair value adjustments on available-for-sale securities, net of taxes of $374

     641        —           —          —          641   

Other comprehensive income of equity method investments

     862        —           844        (844     862   

Foreign currency translation adjustments

     (39,118     —           (39,121     39,118        (39,121
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of tax

     (35,565     —           (38,277     38,274        (35,568
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net of tax

   $ 111,100      $ 139,948       $ 45,008      $ (183,900   $ 112,156   

Comprehensive income attributable to noncontrolling interests

     —          —           (1,056     —          (1,056
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Cinemark USA, Inc.

   $ 111,100      $ 139,948       $ 43,952      $ (183,900   $ 111,100   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2013

 

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

Operating activities

          

Net income

   $ 133,921      $ 153,177      $ 89,608      $ (241,019   $ 135,687   

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

     (180,891     2,420        34,568        241,019        97,116   

Changes in assets and liabilities and other

     40,026        (92,332     (2,132     —          (54,438
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     (6,944     63,265        122,044        —          178,365   

Investing activities

          

Additions to theatre properties and equipment

     (15,490     (55,649     (88,349     —          (159,488

Proceeds from sale of theatre properties and equipment and other

     21,073        8,325        482        —          29,880   

Acquisition of theatres in U.S.

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

Dividends received from subsidiaries

     1,881        6        —          (1,887     —     

Other

     —          —          (5,080     —          (5,080
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (233,789     (65,312     (92,947     (1,887     (393,935

Financing activities

          

Dividends paid to parent

     (76,575     —          (1,887     1,887        (76,575

Issuance of senior notes

     530,000        —          —          —          530,000   

Redemption of senior notes

     (461,946     —          —          —          (461,946

Repayments of long-term debt

     (5,250     —          (337     —          (5,587

Payment of debt issue costs

     (9,328     —          —          —          (9,328

Payments on capital leases

     (1,979     (5,036     (1,465     —          (8,480

Purchase of noncontrolling interest share of Adamark S.A., a Brazilian subsidiary

     —          (5,621     —          —          (5,621

Other

     3,488        (3,464     (666     —          (642
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

     (21,590     (14,121     (4,355     1,887        (38,179

Effect of exchange rate changes on cash and cash equivalents

     —          —          (8,745     —          (8,745
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (262,323     (16,168     15,997        —          (262,494

Cash and cash equivalents:

          

Beginning of year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

   $ 43,304      $ 177,695      $ 258,602      $ —        $ 479,601   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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CINEMARK USA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION

NINE MONTHS ENDED SEPTEMBER 30, 2014

 

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

Operating activities

          

Net income

   $ 146,665      $ 139,948      $ 83,285      $ (222,174   $ 147,724   

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

     (138,078     19,427        20,817        222,174        124,340   

Changes in assets and liabilities and other

     138,024        (217,156     29,735        —          (49,397
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     146,611        (57,781     133,837        —          222,667   

Investing activities

          

Additions to theatre properties and equipment

     (61,840     (34,168     (60,160     —          (156,168

Proceeds from sale of theatre properties and equipment and other

     1,100        81        792        —          1,973   

Dividends received from subsidiaries

     925        5        —          (930     —     

Investments in, and loans to, subsidiaries

     (1,918     —          —          1,918        —     

Investment in joint ventures and other

     —          —          (1,925     —          (1,925
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (61,733     (34,082     (61,293     988        (156,120

Financing activities

          

Dividends paid to parent

     (86,250     —          (930     930        (86,250

Repayments of long-term debt

     (5,250     —          (1,452     —          (6,702

Payments on capital leases

     (2,990     (5,898     (1,405     —          (10,293

Capital contributions and loans from parent

     —          1,918        —          (1,918     —     

Other

     3,349        (9,776     —          —          (6,427
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

     (91,141     (13,756     (3,787     (988     (109,672

Effect of exchange rate changes on cash and cash equivalents

     —          —          (10,283     —          (10,283
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (6,263     (105,619     58,474        —          (53,408

Cash and cash equivalents:

          

Beginning of year

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of year

   $ 55,802      $ 70,139      $ 420,545      $ —        $ 546,486   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

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 September 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 nine months ended September 30, 2014 included the carryover of Frozen as well as new releases Guardians of the Galaxy, Captain America: The Winter Soldier, The LEGO® Movie, Transformers: Age of Extinction, Maleficent, X-Men: Days of Future Past, Dawn of the Planet of the Apes, The Amazing Spider-Man 2, Godzilla, 22 Jump Street, Teenage Mutant Ninja Turtles, How to Train Your Dragon 2 and Divergent, 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, Night at the Museum 3 and new films such as Into the Woods, Fury, Gone Girl, Big Hero 6, 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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Table of Contents

Results of Operations

The following table sets forth, for the periods indicated, certain operating data and the percentage of revenues represented by certain items reflected in our condensed consolidated statements of income. 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
September 30,
    Nine Months Ended
September 30,
 

Operating data (in millions):

   2014     2013     2014     2013  

Revenues

        

Admissions

   $ 402.9      $ 479.6      $ 1,239.5      $ 1,293.5   

Concession

     211.1        242.3        630.6        643.4   

Other

     32.9        35.7        97.0        94.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 646.9      $ 757.6      $ 1,967.1      $ 2,031.0   

Cost of operations

        

Film rentals and advertising

     215.5        254.8        665.4        692.2   

Concession supplies

     33.5        39.0        98.9        104.0   

Salaries and wages

     67.9        73.2        202.2        198.8   

Facility lease expense

     80.6        85.1        239.6        230.8   

Utilities and other

     79.5        84.7        234.0        229.8   

General and administrative expenses

     35.2        41.9        112.7        119.0   

Depreciation and amortization

     44.7        42.4        131.1        120.2   

Impairment of long-lived assets

     4.5        0.2        5.3        2.1   

(Gain) loss on sale of assets and other

     2.6        0.6        8.7        (2.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of operations

     564.0        621.9        1,697.9        1,694.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 82.9      $ 135.7      $ 269.2      $ 336.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating data as a percentage of total revenues:

        

Revenues

        

Admissions

     62.3     63.3     63.0     63.7

Concession

     32.6     32.0     32.1     31.7

Other

     5.1     4.7     4.9     4.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100.0     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of operations (1)

        

Film rentals and advertising

     53.5     53.1     53.7     53.5

Concession supplies

     15.9     16.1     15.7     16.2

Salaries and wages

     10.5     9.7     10.3     9.8

Facility lease expense

     12.5     11.2     12.2     11.4

Utilities and other

     12.3     11.2     11.9     11.3

General and administrative expenses

     5.4     5.5     5.7     5.9

Depreciation and amortization

     6.9     5.6     6.7     5.9

Impairment of long-lived assets

     0.7     0.0     0.3     0.1

(Gain) loss on sale of assets and other

     0.4     0.1     0.4     (0.1 )% 

Total cost of operations

     87.2     82.1     86.3     83.4

Operating income

     12.8     17.9     13.7     16.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Average screen count (month end average)

     5,622        5,793        5,602        5,524   
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues per average screen (dollars)

   $ 115,066      $ 130,772      $ 351,133      $ 367,661   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

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Table of Contents

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

Revenues. Total revenues decreased $110.7 million to $646.9 million for the three months ended September 30, 2014 (“third quarter of 2014”) from $757.6 million for the three months ended September 30, 2013 (“third quarter of 2013”), representing a 14.6% 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
September 30,
    Three Months Ended
September 30,
    Three Months Ended
September 30,
 
                   %                   %                   %  
     2014      2013      Change     2014      2013      Change     2014      2013      Change  

Admissions revenues(1)

   $ 290.5       $ 337.9         (14.0 )%    $ 112.4       $ 141.7         (20.7 )%    $ 402.9       $ 479.6         (16.0 )% 

Concession revenues(1)

   $ 155.3       $ 171.1         (9.2 )%    $ 55.8       $ 71.2         (21.6 )%    $ 211.1       $ 242.3         (12.9 )% 

Other revenues(1)(2)

   $ 14.7       $ 16.8         (12.5 )%    $ 18.2       $ 18.9         (3.7 )%    $ 32.9       $ 35.7         (7.8 )% 

Total revenues (1)(2)

   $ 460.5       $ 525.8         (12.4 )%    $ 186.4       $ 231.8         (19.6 )%    $ 646.9       $ 757.6         (14.6 )% 

Attendance(1)

     42.8         50.6         (15.4 )%      23.4         30.4         (23.0 )%      66.2         81.0         (18.3 )% 

 

(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 due to a 15.4% decline in attendance, partially offset by a 1.6% increase in average ticket price from $6.68 for the third quarter of 2013 to $6.79 for the third quarter of 2014. The decrease in concession revenues was attributable to the 15.4% decline in attendance, partially offset by a 7.4% increase in concession revenues per patron from $3.38 for the third quarter of 2013 to $3.63 for the third quarter of 2014. The decline in attendance was due to the weaker film slate during the third quarter of 2014 compared to the third quarter of 2013. The increase in average ticket price was primarily due to an increase in the mix of premium tickets sold. The increase in concession revenues per patron was primarily due to incremental sales and price increases. The decrease in other revenues was primarily attributable to the 15.4% decrease in attendance, which resulted in decreases in screen advertising, video game and other promotional revenues.

 

  International. Admissions revenues decreased due to a 23.0% decline in attendance, partially offset by a 3.0% increase in average ticket price from $4.66 for the third quarter of 2013 to $4.80 for the third quarter of 2014. The decrease in concession revenues was attributable to the decline in attendance, partially offset by a 1.7% increase in concession revenues per patron from $2.34 for the third quarter of 2013 to $2.38 for the third quarter of 2014. The decline in attendance was due to the weaker film slate during the third quarter of 2014 compared to the third quarter of 2013. The third quarter of 2014 was also unfavorably impacted by the sale of our Mexico theatres during November 2013, the World Cup and the unfavorable impact of exchange rates in certain countries in which we operate. The increase in average ticket price was primarily due to local currency price increases and an increase in the mix of premium tickets sold partially offset by the unfavorable impact of exchange rates in certain countries in which we operate. The increase in concession revenues per patron was primarily due to incremental sales and local currency price increases partially offset by the unfavorable impact of exchange rates in certain countries in which we operate.

 

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Table of Contents

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

 

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

Film rentals and advertising

   $ 161.1       $ 185.3       $ 54.4       $ 69.5       $ 215.5       $ 254.8   

Concession supplies

     20.9         23.0         12.6         16.0         33.5         39.0   

Salaries and wages

     49.3         53.0         18.6         20.2         67.9         73.2   

Facility lease expense

     58.4         58.5         22.2         26.6         80.6         85.1   

Utilities and other

     55.8         57.5         23.7         27.2         79.5         84.7   

 

  U.S. Film rentals and advertising costs were $161.1 million, or 55.5% of admissions revenues, for the third quarter of 2014 compared to $185.3 million, or 54.8% of admissions revenues, for the third quarter of 2013. The increase in the film rentals and advertising rate was primarily due to the mix of films released during the third quarter of 2014 compared to the third quarter of 2013 and increased advertising and promotion expenses and other film presentation costs. Concession supplies expense was $20.9 million, or 13.5% of concession revenues, for the third quarter of 2014 compared to $23.0 million, or 13.4% of concession revenues, for the third quarter of 2013.

Salaries and wages decreased to $49.3 million for the third quarter of 2014 from $53.0 million for the third quarter of 2013 primarily due to reduced staffing levels in response to the 15.4% decrease in attendance. Facility lease expense decreased to $58.4 million for the third quarter of 2014 from $58.5 million for the third quarter of 2013, which reflected an increase in base rent due to new theatre openings, offset by a decrease in percentage rent as a result of the revenue decline. Utilities and other costs decreased to $55.8 million for the third quarter of 2014 from $57.5 million for the third quarter of 2013 primarily due to a decrease in equipment lease expense for our digital projectors, which was driven by lease amendments that removed future increases in lease payments.

 

  International. Film rentals and advertising costs were $54.4 million, or 48.4% of admissions revenues, for the third quarter of 2014 compared to $69.5 million, or 49.0% of admissions revenues, for the third quarter of 2013. Concession supplies expense was $12.6 million, or 22.6% of concession revenues, for the third quarter of 2014 compared to $16.0 million, or 22.5% of concession revenues, for the third quarter of 2013

Salaries and wages decreased to $18.6 million for the third quarter of 2014 from $20.2 million for the third quarter of 2013. Facility lease expense decreased to $22.2 million for the third quarter of 2014 from $26.6 million for the third quarter of 2013 primarily due to a decrease in percentage rent as a result of the decline in revenues. Utilities and other costs decreased to $23.7 million for the third quarter of 2014 from $27.2 million for the third 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 $35.2 million for the third quarter of 2014 from $41.9 million for the third quarter of 2013. The reduction was primarily due to decreased incentive compensation expense, decreased share based award compensation expense, decreased professional fees, the effect of changes in the exchange rates in certain countries in which we operate and the impact of the sale of our Mexico theatres in November 2013.

Depreciation and Amortization. Depreciation and amortization expense was $44.7 million during the third quarter of 2014 compared to $42.4 million during the third quarter of 2013. The increase was primarily due to new theatres, partially offset by the sale of our Mexico theatres during November 2013.

Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used of $4.5 million during the third quarter of 2014 compared to $0.2 million during the third 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 third 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.

 

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Table of Contents

Loss on Sale of Assets and Other. We recorded a loss on sale of assets and other of $2.6 million during the third quarter of 2014 compared to $0.6 million during the third quarter of 2013. The loss recorded during the third quarter of 2014 was primarily due to the retirement of certain theatre equipment that was replaced during the period and lease termination charges recorded for theatre closures.

Interest Expense. Interest costs incurred, including amortization of debt issue costs, were $28.3 million during the third quarter of 2014 compared to $29.5 million during the third quarter of 2013.

Distributions from NCM. We recorded distributions from NCM of $3.5 million during the third quarter of 2014 compared to $5.6 million during the third quarter of 2013, which were in excess of the carrying value of our Tranche 1 investment. See Note 7 to our condensed consolidated financial statements.

Equity in Income of Affiliates. We recorded equity in income of affiliates of $10.3 million during the third quarter of 2014 compared to $11.7 million during the third quarter of 2013. The equity in income of affiliates recorded during the third quarter of 2014 primarily included income of approximately $4.8 million related to our equity investment in DCIP (see Note 7 to our condensed consolidated financial statements) and income of approximately $5.4 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 third quarter of 2013 primarily included income of approximately $4.6 million related to our equity investment in DCIP and income of approximately $7.1 million related to our equity investment in NCM.

Income Taxes. Income tax expense of $25.8 million was recorded for the third quarter of 2014 compared to $43.6 million for the third quarter of 2013. The effective tax rate was approximately 39.8% for the third quarter of 2014 compared to 35.0% for the third quarter of 2013. 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.

Nine months ended September 30, 2014 versus September 30, 2013

Revenues. Total revenues decreased $63.9 million to $1,967.1 million for the nine months ended September 30, 2014 (“the 2014 period”) from $2,031.0 million for the nine months ended September 30, 2013 (“the 2013 period”), representing a 3.1% 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  
     Nine Months Ended
September 30,
    Nine Months Ended
September 30,
    Nine Months Ended
September 30,
 
                   %                   %                   %  
     2014      2013      Change     2014      2013      Change     2014      2013      Change  

Admissions revenues (1)

   $ 907.9       $ 908.4         (0.1 )%    $ 331.6       $ 385.1         (13.9 )%    $ 1,239.5       $ 1,293.5         (4.2 )% 

Concession revenues (1)

   $ 471.4       $ 453.3         4.0   $ 159.2       $ 190.1         (16.3 )%    $ 630.6       $ 643.4         (2.0 )% 

Other revenues (1) (2)

   $ 44.3       $ 41.4         7.0   $ 52.7       $ 52.7         0.0   $ 97.0       $ 94.1         3.1

Total revenues (1) (2)

   $ 1,423.6       $ 1,403.1         1.5   $ 543.5       $ 627.9         (13.4 )%    $ 1,967.1       $ 2,031.0         (3.1 )% 

Attendance (1)

     129.9         132.2         (1.7 )%      68.3         79.6         (14.2 )%      198.2         211.8         (6.4 )% 

 

(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 decrease in admissions revenues of $0.5 million was attributable to a 1.7% decline in attendance offset by a 1.7% increase in average ticket price from $6.87 for the 2013 period to $6.99 for the 2014 period. The increase in concession revenues was attributable to a 5.8% increase in concession revenues per patron from $3.43 for the 2013 period to $3.63 for the 2014 period, partially offset by the 1.7% decline in attendance. 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 were also impacted by the inclusion of the 32 Rave theatres acquired on May 29, 2013 (see Note 4 to the condensed consolidated financial statements).

 

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  International. Admissions revenues decreased due to a 14.2% decline in attendance, partially offset by a 0.4% increase in average ticket price from $4.84 for the 2013 period to $4.86 for the 2014 period. The decrease in concession revenues was attributable to the 14.2% decline in attendance and a 2.5% decrease in concession revenues per patron from $2.39 for 2013 period to $2.33 for 2014 period. The 2014 period was impacted by the unfavorable impact of exchange rates in certain countries in which we operate, the sale of our Mexico theatres during November 2013 and the World Cup. 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  
     Nine Months Ended
September 30,
     Nine Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2014      2013      2014      2013      2014      2013  

Film rentals and advertising

   $ 505.5       $ 502.6       $ 159.9       $ 189.6       $ 665.4       $ 692.2   

Concession supplies

     64.4         62.3         34.5         41.7         98.9         104.0   

Salaries and wages

     149.8         140.2         52.4         58.6         202.2         198.8   

Facility lease expense

     176.2         157.2         63.4         73.6         239.6         230.8   

Utilities and other

     164.7         150.9         69.3         78.9         234.0         229.8   

U.S. Film rentals and advertising costs were $505.5 million, or 55.7% of admissions revenues for the 2014 period compared to $502.6 million, or 55.3% of admissions revenues, for the 2013 period. The increase in the film rentals and advertising rate was due to the mix of films released during the 2014 period compared to the 2013 period and increased advertising and promotion expenses and other film presentation costs. Concession supplies expense was $64.4 million, or 13.7% of concession revenues, for the 2014 period compared to $62.3 million, or 13.7% of concession revenues, for the 2013 period.

Salaries and wages increased to $149.8 million for the 2014 period from $140.2 million for the 2013 period. Facility lease expense increased to $176.2 million for the 2014 period from $157.2 million for the 2013 period. Utilities and other costs increased to $164.7 million for the 2014 period from $150.9 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 $159.9 million, or 48.2% of admissions revenues, for the 2014 period compared to $189.6 million, or 49.2% of admissions 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. Concession supplies expense was $34.5 million, or 21.7% of concession revenues, for the 2014 period compared to $41.7 million, or 21.9% of concession revenues, for the 2013 period.

Salaries and wages decreased to $52.4 million for the 2014 period from $58.6 million for the 2013 period. Facility lease expense decreased to $63.4 million for the 2014 period from $73.6 million for the 2013 period. Utilities and other costs decreased to $69.3 million for the 2014 period from $78.9 million for the 2013 period. All of the above-mentioned theatre operating costs were impacted by changes in exchange rates in certain countries in which we operate and the sale of our Mexico theatres during November 2013.

General and Administrative Expenses. General and administrative expenses decreased to $112.7 million for the 2014 period from $119.0 million for the 2013 period. The reduction was primarily due to the effect of changes in exchange rates in certain countries in which we operate and the sale of our Mexico theatres in November 2013, offset by increased professional fees and increased salaries expense.

Depreciation and Amortization. Depreciation and amortization expense was $131.1 million for the 2014 period compared to $120.2 million for the 2013 period. The increase was primarily due to new theatres, including the 32 Rave theatres acquired on May 29, 2013, partially offset by the sale of our Mexico theatres during November 2013.

 

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Impairment of Long-Lived Assets. We recorded asset impairment charges on assets held and used of $5.3 million for the 2014 period compared to $2.1 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 eight 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 $8.7 million during the 2014 period compared to a gain of $2.5 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 and lease termination charges recorded for theatre closures. The gain recorded during the 2013 period was primarily a result of a gain on sale of a land parcel in the U.S., partially offset by the retirement of theatre equipment replaced during the period.

Interest Expense. Interest costs incurred, including amortization of debt issue costs, were $85.1 million for the 2014 period compared to $96.5 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 (see Note 3 to the condensed consolidated financial statements).

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 (see Note 3 to the condensed consolidated financial statements).

Distributions from NCM. We recorded distributions from NCM of $14.2 million during the 2014 period and $13.4 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 $17.5 million during the 2014 period compared to $15.8 million during the 2013 period. The equity in income of affiliates recorded during the 2014 period primarily included income of approximately $11.0 million related to our equity investment in DCIP (see Note 7 to our condensed consolidated financial statements) and income of approximately $5.7 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 primarily included income of approximately $7.3 million related to our equity investment in DCIP and income of approximately $8.5 million related to our equity investment in NCM.

Income Taxes. Income tax expense of $71.3 million was recorded for the 2014 period compared to $63.4 million for the 2013 period. The effective tax rate was 32.6% for the 2014 period compared to 31.8% for the 2013 period. The effective tax rate for the 2013 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 $222.7 million for the nine months ended September 30, 2014 compared to $178.4 million for the nine months ended September 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 nine months ended September 30, 2013.

 

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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 $156.1 million for the nine months ended September 30, 2014 compared to $393.9 million for the nine months ended September 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 nine months ended September 30, 2013.

Cash capital expenditures for the nine months ended September 30, 2014 and 2013 were as follows (in millions):

 

Period

   New
Theatres
     Existing
Theatres
     Total  

Nine Months Ended September 30, 2014

   $ 70.5      $ 85.7       $ 156.2  

Nine Months Ended September 30, 2013

   $ 88.9       $ 70.6       $ 159.5   

We continue to invest in our U.S. theatre circuit, which consisted of 4,473 screens at September 30, 2014. During the nine months ended September 30, 2014, we built five theatres with 59 screens and closed six theatres with 43 screens. At September 30, 2014, we had signed commitments to open three new theatres with 31 screens in domestic markets during the remainder of 2014 and open 10 new theatres with 112 screens subsequent to 2014. We estimate the remaining capital expenditures for the development of these 143 domestic screens will be approximately $92 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 1,156 screens at September 30, 2014. During the nine months ended September 30, 2014, we built nine new theatres and 54 screens and closed four screens. At September 30, 2014, we had signed commitments to open two new theatres and 20 screens in international markets during the remainder of 2014 and open 12 new theatres and 75 screens subsequent to 2014. We estimate the remaining capital expenditures for the development of these 95 international screens will be approximately $70 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 $109.7 million for the nine months ended September 30, 2014 compared to $38.2 million for the nine months ended September 30, 2013. Cash used for financing activities for the nine months ended September 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, at the discretion of the board of directors and subject to applicable law, anticipate paying regular quarterly dividends on our common stock. The amount, if any, of the dividends to be paid in the future will depend upon our then available cash, anticipated cash needs, overall financial condition, loan agreement restrictions as discussed below, future prospects for earnings and cash flows, as well as other relevant factors.

 

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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 September 30, 2014 (in millions):

 

Cinemark, USA, Inc. term loan

   $ 687.8   

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

   $ 1,826.1   

Less current portion

     8.4   
  

 

 

 

Long-term debt, less current portion

   $ 1,817.7   
  

 

 

 

As of September 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.

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 September 30, 2014, Cinemark USA, Inc. could have distributed up to approximately $1,633.0 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 September 30, 2014 was approximately 6.0 to 1.

 

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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 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 September 30, 2014, Cinemark USA, Inc. could have distributed up to approximately $1,657.6 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.

 

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At September 30, 2014, there was $687.8 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 September 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, 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 September 30, 2014, Cinemark USA, Inc. could have distributed up to approximately $1,636.9 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 September 30, 2014 was approximately 6.2 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

 

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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 September 30, 2014, Cinemark USA, Inc. could have distributed up to approximately $1,626.5 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 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 September 30, 2014 was approximately 6.0 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 September 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 nine months ended September 30, 2013.

 

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Covenant Compliance

As of September 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.

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 September 30, 2014, there was an aggregate of approximately $237.8 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 September 30, 2014 as discussed below. Based on the interest rates in effect on the variable rate debt outstanding at September 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 September 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 September 30, 2014:

 

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

Fixed rate (1)

   $ 1.4       $ 1.4       $ 1.4       $ 1.4       $ 1.4       $ 1,581.3       $ 1,588.3       $ 1,565.1         5.1

Variable rate

     7.0         7.0         7.0         7.0         7.0         202.8         237.8         234.2         3.1
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total debt

   $ 8.4       $ 8.4       $ 8.4       $ 8.4       $ 8.4       $ 1,784.1       $ 1,826.1       $ 1,799.3      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

(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 September 30, 2014 discussed above.

 

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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 our Annual Report on Form 10-K for the year ended December 31, 2013 filed March  7, 2014.

Item 4. Controls and Procedures

Evaluation of the Effectiveness of Disclosure Controls and Procedures

As of September 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 operati